Yeah, everyone, good evening. Are we audible?
Yeah, Himanshu, you're audible.
Okay. Thanks a lot for turning up at such a short notice. We feel it is pertinent that before every state starts making their own assumption regarding, in light of the recent circular from IRDAI around distribution reforms, we felt it is pertinent that you hear the company's side also. Yeah, essentially we have the entire top management of Mr. Krishnan, Vishwanath and Ankur. I guess the way we will do it, I will let Krishnan to have some opening remarks, and after that, we can open the floor to Q&A. I request that basically during the opening remarks, you please all keep it on mute. And once we open it up for Q&A, then I guess you can raise the hand and then I will request one by one for the participant to unmute and ask their question.
Yeah, with that, without wasting any further time, over to you, Krishnan.
Sure. Am I audible? Just to reconfirm.
Yeah.
Ankur, you're there?
Yeah.
Thank you.
Of course. Yes, sir.
Okay. Thank you everyone for making time. Just one correction to what Himanshu mentioned. It is a consultation paper that IRDAI has released. Our best understanding of course, they're going through a consultation process where comments are due by late October, and our best understanding of when this goes live is April 2027. That's our understanding at this point in time. Broadly, we did our own internal analysis of what this means for us, and I thought we'd articulate our view in terms of what it means. If I had to make one headline comment for the industry and for us as a company, we believe it is a net positive.
If I specifically focus on retail health, which is about 75% of our book for Q1, I think the most recent example I would draw upon is the GST experience of the last seven odd months, where prices coming down resulted in a very good and so far sustained uptick in demand. What commission levels coming down portends is our ability to keep prices affordable all things being the same for longer than would've been otherwise the case. Which means that we expect benefits to pass on to customers and we also expect economic value to accrue to us, incremental economic value to accrue to us. Also, from a distribution standpoint, we do expect volumes to ameliorate some of the impact of loss in take rates. Right?
This is exactly the commentary we had made as a management team at the anvil of GST when we had indicated that we intend to pass on commission to distribution and also hold prices in the expectation of demand. Of course, at this point in time it's a consultation paper, so where the numbers eventually land, we'll have to wait and see. Broadly across the board as far as retail is concerned, we believe it is teed up for more sustained volume growth at the industry level and certainly us as an operator for a longer duration with, as I said, customer benefit, incrementally better economics for us and from a distribution standpoint, volumes compensating for fee income, give or take what the starting point of a particular distribution channel is.
If I sort of break this out channel by channel from our standpoint, the four big retail engines we have as a company are agency. On agency, the recommendation for commission levels is 20% and 10%. On sale, it is not very different from where we already operate. On new there is a difference but not a materially big difference relative to where we operate. We believe that agency, all of what I described in terms of growth as well as economics, we believe will definitely play out quite strongly from our standpoint. The second engine that I want to speak about is our direct to consumer engine, which is about 20% of what we write as a company. Here again, we believe that there is going to be a significant net positive both on growth as well as economics from a company standpoint.
As far as banks is concerned, there is a relatively sharp fall with respect to where commissions or acquisition costs stands today. Our belief is that the demand and the growth on retail health with banks will only continue to be stronger than perhaps what it is. I will give you an example of how we dealt with the GST input tax credit to explain how we believe this will play out. On the back of passing on ITC, what we did with our bank partners is to go and invest in incremental headcount to gather more business, which meant that they would not see a drop in absolute fee income. Effectively, how it has played out over the last 12 months is that our monthly run rate on retail business with banks has actually doubled.
We believe that our strategy with banks will be to invest in growing our retail business. The model with banks is largely a lead model in the sense that the banks pass on leads to our frontline sales teams who man bank branches and get business. We believe that the impact of these proposed changes with respect to our bank distribution, again, will be positive from a growth standpoint, and we believe that economics should improve relative to where we stand. That brings me to the last big engine of distribution from a company standpoint, which is, let me call it the digital broking ecosystem. Needless to say, Policybazaar is the largest engine there. Here, our point of view is that growth, I think there is enough levers at play for Policybazaar to continue what is a fantastic growth story and a growth engine.
Our belief is that we will continue to participate in that growth engine as we are currently doing. In terms of economics, clearly from our standpoint, what has come out is positive, but we see where it eventually lands in terms of what the final regulations are. That is broadly our assessment of how this is going to play out for retail. To summarize, we believe that our ability to drive above-market growth rates, pass on benefits to consumers, and derive incremental economic value, we are fairly well positioned. You saw our summary on the retail side. On the B2B side, I guess what matters is the overall pricing environment. In some sense, we see our positioning here as either neutral or maybe marginally positive, depending on how pricing plays out.
Clearly here, the overall pricing environment is the bigger lever, and this is about 8%, 9% of our overall book. Neutral to maybe incrementally positive is what we understand. That leaves us with the B2B2C part of our book, which is the loan link business that we do with our banks as well as non-banks. Here from an economic position standpoint, let me first say from a business standpoint, clearly, things being equal, there will be a drop in business. At the same time, we see a fairly sizable opportunity opening up for us because banks as well as non-banks are allowed roughly 5% premium as a percentage to loan value. Today, a significant part of that is taken up by credit life.
So we believe. Our view is that, look, more counters will get open to us, and we will be able to improve penetration in existing counters. Premiums will come down. Volumes penetrate either through new counters or increased penetration existing counters should go up. Our strong point of view is both of these are essential products, term life as well as health, from a delinquency management standpoint. So yes, on the face of it there is a top-line impact which we will mitigate starting now to identify systematically which counters will open up and where do we have opportunities. Therefore, where can we improve penetration there? The other one that I do want to point out, where we've already signed a formal MoU is a combi partnership with a life insurance company.
So the combination of term life or credit life plus health is something that we believe should be a mitigant as far as this part of our business is concerned. How it plays out we're not in a position to exactly quantify at this point in time, but we're comfortable, at least from bottom-line standpoint, we are okay. In terms of business impact we do believe there's an opportunity for us to go after given what I've just described in terms of premium to loan. What we are comfortable in stating today is that this line of business will continue. In terms of actual business, we'll have to see how we mitigate as we move along. So that's broadly the commentary I wanted to make. Agrawal.
Yes, sir.
I guess one last comment is on expense management. We have done some preliminary modeling. We are in a comfortable situation to meet certainly the two years requirement of 25%. Again, I just thought I'd lay this out there. So open to your questions. At this point, Q&A, anything you want to know?
Yeah. For Q&A, I will moderate the same, but I request if people can raise hands and then I will mention the name and request the participant to unmute and tell us the question.
How you see who raises their hands more.
Yeah, Paresh. Paresh can raise a hand and then ask him.
Yeah. Hi. Hi, Krishnan. Hi, everyone. Can you hear me?
Yes.
Yeah. Hi. Just a few points first. The last point that you mentioned about expense of management being met at 25% in two years, that is 35% going down to 25%. Right? That is a big move. Largely that would be because of commissions or it would be some other measures that you are considering that will allow you to meet that number.
Paresh, one, this 34 odd percent last financially, anyways, in two years' time which is FY, in fact, three years, this year and two more years, it would have gone down more than 30. Now on top of this commission moderation will definitely help, and we are very confident of meeting this 25%. In fact, I would say 20% also in five years' time.
Paresh, broadly the trail today stands at. Trail, if you look at it, is 10 and five in what has been recommended. Out of the 33%, 34% that we are at today, roughly 20% is commission.
Right. Yeah.
22% is commission. If you just do the math, just from commission falling, it solves for itself.
This also accounts for the increase in manpower, which Krishnan has talked about. So even after conceding all those, we are comfortable, Paresh.
But also on the other hand, your premium rates will go down, so your GDPI number will definitely be lower than what you would have worked with. As a percentage, the total EoM that you would have wanted to spend, that will also go down in absolute terms. So will you still be comfortable because you are also talking about investing in other channels and investing in growth. So have you factored that in as well?
Paresh, why do you say premium rates will go down?
If commissions go down, you will have to pass on, right? That's what the good driver would be, right? If the commissions go down, like in GST, when the rate was cut, you had to bring up the premium rates. Right?
No, no, we did not bring down the premium rates. No. Just to be clear, we did not bring down the premium rates. We kept the premium rates the same.
Yeah. But that was in GST that was passed on to the customer. But here, if the commissions are cut, you wouldn't reprice the products down, is what you're saying?
Yeah. So the same thing that we did with GST, we would hold prices for longer than we would have otherwise done so, right?
Yeah.
So it's not that premium rates are coming down, and we have also seen people buying up the ticket sizes on the back of GST, actually went up quite sharply in our case. Yeah. Just to, okay, just let's say combined ratio is, whatever it is, 98% to 99%. Now, commission is going down. To that extent, loss ratio will increase because we will increase premium slower than otherwise we would have.
Got that. And the other question was, overall, as you see these measures, which channel, you kind of articulated actually which channel, but I think you came across as positive across the channels. Except for some bit of pressure on a digital distributor like PB Fintech. But all the channels, like individual agents have gone through already a cut of commissions in the past, after GST. Now, again, there will be another cut for them. And banks again, the good part of the business will go away on particularly for group, the credit attachment products. Do you think that the distribution will take some time to recalibrate themselves, and a period of almost a year could go down in terms of growth reversing back to normalcy? How do you see the industry growth rate panning out in the, say, FY 2028?
How would the growth kind of pan out, especially given that we will be coming from a high base of first half of FY 2027?
Ankur, you want to take a stab and then I'll add?
Look, from an overall growth for the industry, we still need to work out various things because the base effect would also be there beyond everything else. But largely, two points I would mention. First, let me take in channel, which is retail. Currently on senior citizen, et cetera, they are working at the renewal of what is recommended in the consultation paper. So which means all of the other businesses. So they are already used to that level of percentage.
But what we have also seen is in the last five years, the ticket size for an agency business has gone up by 60%, 70%, 80%. So their income is not going down. And that's what is happening and will happen in the overall period of time, is the same thing there. But their income will not go down because the overall renewal will come to 10. But when you look at the other side of it, which is the premium going up, will continuously go up as well. So their overall income, what we feel is not going down. There'll be a lot of things and the measures industry is already taking to build the demand. So if the demand still holds up and we're able to get that, then the income may not go down. That's our today's perspective, our view is today.
This is for agency channel. Short term, three months, one quarter, two quarters, will there be an impact? Definitely, there can be some impact. That's all the short term. Largely what we see is retail business will not get impacted over short to medium term. Retail business will only benefit based on what has come out in the consultation paper.
And when you step back and keep aside the levels at which these operate today, which product anywhere in the world or in India gives you 10% guaranteed trail? I mean, you have to pick, or 5% for that matter, right? I mean, when you look at it that way, in absolute terms, it is actually quite attractive or continues to be attractive.
Just one follow-up on that.
As Ankur said, there is a day game, there is upsell, there is cross-sell. The absolute income stream actually only grows over time in a health book. Actually, if you look at it, even adjusting for ticket size differences with respect to life, it is way more attractive than distributing life insurance on a like-to-like basis.
This last one follow-up, then I will move back in the queue. When you talk about the ticket sizes increasing after GST and premiums going up, there was a clear-cut benefit to the customer in terms of, for him, the impact of GST was positive in the sense that he was paying less and he kind of maintained its payout and that is the reason he could increase his ticket size. There is no such thing happening here where the customer is getting any benefit. What will then drive the demand from the customer side?
Our requirement to increase rates is that much lower, Paresh. See, one is explicit, the other is implicit. But ultimately, economically, both are the same. Am I right?
Yeah, absolutely. So earlier he was paying INR 118. After GST, he is paying INR 100. Now this INR 100, let us say every year is increasing, say by 10%. So this will not increase by INR 110. It will remain INR 100. So relative basis, yes, he is benefiting. Got that. Thank you. I will come back in the queue.
Yeah, Nischint, you may please go ahead. Unmute and ask the question.
Yeah, thanks. In this call, you mentioned that for the B2B business, this will either be neutral or positive. I mean, the way I think about it is that if EOM guidelines are getting tougher, then there are very high chances that, again, this whole thing about some of the players trying to step up on the B2B business to manage the EOM guidelines. I mean, they could tend to do that, and again, that business could become sub-optimal. Do you see that risk?
Yeah. I mean, basically my starting point, Nischint, is it cannot be worse than what it is today. I mean, from a pricing standpoint-
It's not going look improving either, right? I mean, looking at-
Yeah. So when I say neutral or positive, I meant, look, the pricing cycle cannot be worse than what it is today, and hopefully it only improves. It's the only point I'm making.
Got it. The other thing is that the commissions that are going to be paid to the agents are going to be higher than commissions that are going to be paid to the institutions. As I understand, there is an expectation that this will be passed on to the customer. Does it really mean that if I want to buy a health insurance policy, it will be cheaper on through a bank or a Policybazaar than if you buy it through an agent?
The regulation talks about it, that is in theory permitted even today. It is about how you manage that. Today, for example, we offer the same price everywhere except in our direct to consumer business. That's really a practical multi-channel conflict management topic than anything else, Nischint.
No, I agree. The point is that incrementally now, this will be monitored, right? I mean, if it is not done, then it'll probably turn come on to profiteering, right? IRDAI is going to probably monitor it very carefully because the whole intention of cutting commissions was to pass on. In any case, if it is not passed on, then probably it will be, and I think we just had a call with the PB Fintech management, where I think they were also pretty evocative about the fact that whatever we are doing, the benefit of that has to transfer to the customer, or it has to come to us in form of higher commissions. It cannot go to the manufacturer.
In fact, we'll have to work through it. Ultimately, in all of these cases, what matters is the combined ratio. To be honest, it's something that we need to apply ourselves to in terms of how do we make the product channel decisions as we move along. To be honest, I'm less worried about the monitoring part because ultimately what matters is in and out, right? There are also costs that we incur internally, and what matters in terms of how we look at economic models and pricing is this combined ratio rather than just what we pay out to distribution. Is there an argument to be made? There is, but we'll examine it as we move along. It's where I leave it at this point, Nischint.
Okay. Just finally, B2B2C business, I think what you did kind of say that there will be a drop in business over here and you will try to probably compensate it by opening more counters. Just curious, is not this the most profitable business at a combined level for you? In that sense, if the ratio of this business goes down, it kind of puts probably pressure on the overall combined ratio.
See, B2B2C business, it has combined ratio, which is less than 100%. At the same time, the point is that there is no lifetime value. It is one time, one-time sales. If you ask me in terms of attractiveness, retail is much more attractive because it has sizable lifetime value. In that sense, it is more tactical, I would say.
No, fair point, but I am saying that is something which has supported the financials for the last two years and probably even in the forecast for next two years. That would be one of the pillars, maybe not for volume, but for the value per se. I think that is something which, that is a bastion that is sort of shaking right now.
Yeah. But in terms of if we just say pure profitability, any loss here in contribution will be more than offset by saving elsewhere because of this change in commission. Yeah.
Got it. Just one last few, if you can. What do you think happens to platforms like Policybazaar? Is there some scope in which they can charge higher commissions, or they can become advisors to you or partners to you or something like that?
That's what we said. I think the way the consultation paper has come out, not just in Policybazaar's case, but across the board for all distribution, it is quite clear on dos and don'ts. Whatever comes out at the end of the process is something that we will all follow. In terms of impact on Policybazaar, look, obviously, they've already spoken to, but they are a great team. I am sure they will make appropriate business model changes to account for this. As I said, we foresee that growth continues to be strong, and they will continue to be an engine for the industry and the company. In terms of business model and economics, something that they will, I'm sure, woek through.
Got it. Sorry, if I can ask you one more question.
Sure.
Just last one. See, on the direct business, right now, the direct business becomes less attractive, right? Earlier, direct business was a lot. There was a big difference in profitability of direct business and through intermediaries. But now probably the gap reduces. So, the entire DTC vertical becomes less attractive. In that sense, the investment that you probably make in the DTC vertical will probably be lesser from here on.
As of now, not really. We are still assessing some of the things. We just received it. But if you look at it from an outside perspective, if the commissions are going down by 10%, do we make more money than 10% in the DTC? The answer is still yes. It will still be more attractive than other channels, and hence investments will still go on into the Direct-to-Consumer business.
Yeah, but probably the rigor with which you or maybe some of your peers will build their direct-to-consumer business is now going to be lower. Is that a fair reading?
Look, the advantage and value for direct business in terms of brand building, direct customer ownership, the economic value at the noon stays the same. Today it is the most attractive in terms of economic value from a company standpoint. Our assessment is that, give or take, the rank order will stand even after these changes. Given that, I do not see a reason why we would invest less in that channel, Nischint.
Got it. Thank you very much.
Yeah.
Thanks for answering my questions patiently. Thank you.
Yeah. Thank you. Requesting Mohit to please unmute and ask the question.
Hi, sir. The first question is that in the current regime, the difference in the quality of customers being sourced was basically being calculated via the remuneration for that particular channel. So if a channel was bringing in good quality customers, probably they were being remunerated for it. Now with this new regime that is being put forward in this draft paper, if that kind of flexibility is taken away to incentivize the channel with respect to the quality of the customer that they bring, will it result in different channels having different price points? Because as you said, you operate on a combined ratio model on some of the channels. Just wanted to understand that part.
What the recommendation has is a ceiling.
Yeah.
It's not the floor, right? Our ability to play within that ceiling, which is what we do today, just that the ceiling is lower than what it is in general. Also we do have the ability to direct the behavior of our own sales teams. At the end of the day, the core input goes to our sales teams who then work with external distribution, so to speak. This lever needs to be modified, but it doesn't take away from. Maybe we find other levers, but ultimately focusing on quality of business, lifetime value is something that we will adapt as needed and continue to drive. Ankur, do you have any other points?
Krishnan, I appreciate your response, but so far we were able to drive a uniform price across the channel because of varying the distributor incentivization, which was factoring in the quality. Given the distributor incentivization will become more in uniform, and obviously the policy which different channels bring in will obviously remain as is. Some of the channels will bring in good quality and some of them will bring a little with more inferior quality. Then there will be a price dissonance within the channels. If you have to operate on a combined operating model and pass on the price to customers for the channels which are bringing good quality customers, then there'll be a price dissonance between the channels. Is that understanding primary correct?
Look, the decision on varying price across channels, that ability is there even today, just to be clear. We exercise it in the case of our direct to consumer channel. We choose not to exercise it elsewhere. Our belief is the regulators, the regulatory monitoring, et cetera, we'll have to see how it plays out. We'll figure out as we move along what, if anything, we need to do. That's point one. Second is to your point on quality of business. Look, the primary lever to quality of business is underwriting, right? That underwriting stance continues. What you're referring to is. Yeah, so it's not that underwriting is different or relaxed. Of course, we will titrate it depending on channel dynamics, but it's not that we are about to dismiss or not have or not keep the underwriting fence.
When you say quality of business, fundamentally the gate there is underwriting and that will continue to be what it is. Pricing we have discussed, and I guess the third element is the whole how do we incentivize channels basis our lifetime value logic. There I said, between our sales teams and the distribution, of course, now there is a flow, but that lever is available and we'll have to figure out how we fine-tune or adapt that lever.
Got it. Understood. The second question is around, and maybe it is more technical in nature, is around the grandfathering of commissions on the business that is already written and will be renewed in subsequent years. In your reading, is the reduction of commissions on the already written business on a prospective basis or on a retrospective basis? Any comment on that?
We are currently reading as if it is basis whatever business is already written, also renewals for that also is at a lower amount. We will seek clarity from the regulator in terms of what is their overall intent there. Current reading is that this is for any business which is renewal, whenever it gets implemented. Let us assume implementation date of April 1. Any business which was written in 2026 but now renewed in 2027 would also come under the new regime. We will seek for clarity from the regulator on what they intend to do.
Basically the comment that you made earlier in terms of saving the EoM is in this context. If it is only on a prospective basis then there will be some EoM. We will need to see how to manage it, right? Because you will still be paying a higher commission on the back.
No. Our view is still that this is that only because otherwise it will take five, six more years for someone to really structurally change everything. I do not think so.
Yeah.
if the regulator has that view.
But if you read the two in conjunction, EoM and commission, it applies on all in-force business from, let's say, April 2027. You can't sort of have one moving, the other not moving.
Got you.
Yeah.
Got it. Understood. Thanks a lot, sir, for your time.
Yeah.
Thank you.
Swagato, please unmute and go ahead.
Thank you for taking my question, couple of them. Firstly, are you giving any combined ratio guidance? Because we used to guide for 98% to 99% in two, three years' time. Now, does that take a step down because of what's happening on the expense ratio side?
Swagato, I thought you said, does that get accelerated? Not step down.
No, as in the number, yeah. The number now takes a step down, as in it becomes better in terms of your guidance.
Yeah. No, that's a fair question. That's a fair question to ask. I would say, allow us. We have not done the detailed modeling as we need to. And also we want to make sure that we do a full scan, and Ankur and team are going to do that with all of our distribution. We will take about a week or so to do it. Probably after Q2 is when we will engage in conversations. But as I said, at this point of time, we believe it's a net positive in terms of the overall business plan that we have guided you on.
Got it. And one follow-up on PB Fintech as a channel. As per them, their commissions on retail health becomes one-third of what they can actually take now. So in that case, I'm just curious, and you mentioned the paper is kind of clear about what you can do and not do. But if a channel is now getting paid one-third of what it was getting paid earlier, how do you keep that channel motivated to do that business without, say, maybe figuring out ways of sharing the benefits? The higher volumes can make up for whatever they have lost, but why will they go for higher volumes if the payout drastically reduces for them?
Look, two things. Obviously, they are. I mean, Ashish and Sanjay are best placed to answer that question. I'm sure that they've already done it. So two things. One is, what we have is a recommendation at this point. My personal view is that what will finally come out will probably be different from what is there in the recommendation. It is a starting point, and I think that's also in line with how this has played out in the banking industry. At least that's what our friends in the banking world and NBFC world tell us. We'll see in terms of what finally comes. I guess the second thing is in today's digital world, one can envisage digital/Gen AI world, one can envisage a lot of the work at the back end and on the renewal side being done through technology.
I guess it is going to be some combination of these two in terms of where things eventually land. My opening remark was, it is a team that we have the greatest respect for. I am sure they will find ways to continue to grow materially faster than the industry while managing economics for themselves.
Fair point. Two quick questions. Bank retail health, what is the current commission? Can you give some colors?
It is not something that we have put out in the public domain, Swagato.
Got it. Krishnan, can you just help us at least understand that in the new commission suggested, will this still be a profitable proposition for the banks?
The short answer to that is yes. Because it is additive and incremental. As I said, the model with our bank partners is they pass on leads. There is no investments per se that they make into insurance distribution except having a central team and a very skinny third-party team across locations. But by and large, the fee sales teams belong to the insurance company, whether it's Life or Health.
Okay.
It is additive with hardly any variable cost. It's basically a cross-sell product where they're expecting existing customer base and existing access, if you will. Ankur, sorry, you wanted to add on?
I think there's an opportunity for us as well there. With commission going down, we have an opportunity to probably invest more in some of those channels to grow our business there.
You also were making a point on PSU guidance. Do you want to elaborate on that?
Yeah. Also, Swagato, we have two type of bancassurance models today. One is private and one is PSU. We also get a good chunk of business whereby the PSUs operate in. I think there, the commission is not the driving factor. There, the factor to drive business is customer intent, execution, et cetera. There, we definitely see that the business definitely grows up because of all of the efforts and the investments we can make there. Also on the private side, I have a similar view, probably a difficulty in terms of all of that what Krishnan mentioned. But yeah, at least in our view, bancassurance is a channel whereby retail business will go up.
I look at, of course, banks from BFSI are economic actors from the point of view of fee income. But also, there's a reasonably good realization that the number one reasons for people drawing down on savings, breaking deposits is hospitalization across our banks. I am sure when you talk to the leaders in banks, without a doubt, health is established as a product that their customers need. I think that we should not subtract away from. So, I cannot imagine why a bank CEO would want to stop distributing. Whatever is coming is incremental. It is less than what would have been the case otherwise, and all of the effort is being put by the insurance company. Second is on the asset side. I will use the language used by one of the leaders in the NBFC business.
The three big reasons why there is delinquency in loans he described in MDH, right? Marriage, death, and hospitalization. So again, the product is a needed product. Of course, the economics are very attractive to them in terms of what it means for our need, but the fundamental starting point in both cases is the product is needed. Economics, of course, is something that will need to be calibrated and adjusted and solved for. But the product is needed and therefore not going away. I think that should be a starting point for specifically discussions around banks and NBFCs.
Got it. Are you giving the breakup of how much of your bank insurance is PSU currently?
Right. You have the breakup of it. So 35%, 65%. 35% is PSU and 65% is private.
Perfect. Just to clarify, you said agency, after the change, it will be NPV positive for them?
NPV positive for, sorry, for whom?
For the agency channel. After the commission on first time and renewal changes, will it be actually over the lifetime, will it be NPV positive for them?
For the agent or us? Or for the agent?
For the agent.
20% and 10%, lifetime trails is very attractive, Swagato?
I am not sure what the current arrangement you have, hence I am just trying to make sure that-
Yeah. The current arrangement is not dramatically different from that. It will be approved by that.
Okay. Thank you, team. Thank you.
Yeah, thank you, Swagato. Rishi from IIFL, please go ahead.
Yes. Thanks for the opportunity. I think there is one provision that has been included in these consultation papers is that, for individual agents, even agent cannot sell competing products of two insurers now. They cannot sell a health product of a general insurer and a product of a health insurer, which I do not think was the case earlier and effectively leads to agency exclusivity in a way. For example, if you have an agent, then now they probably would not be selling a health policy of an ICICI Lombard anymore. Can you throw some color on that? Seems to be reasonably positive, but we have not seen anyone talking much about it, so your thoughts will be appreciated.
Rishi, my understanding is the one plus one plus one on agency will continue. I do not read anything that changes that.
No. One plus one plus one is fine, but including-
Yeah.
Beyond that, what they're saying is that an IDP cannot sell competing products of two insurers, and they're giving an example where they say they cannot sell a health product of a GI and a product of a health insurer. Effectively, if an agent is selling a SAHI product, then he's not allowed to sell a health product of a GI anymore.
We will go through what you said. At least I have not gone through this. But look, practically, today, our agent is selling not just one health insurance, he's selling two, three as well. When you look at the ground, they are selling more number of companies even today, the regulation doesn't allow basis, family, everything else. Largely should not be different, but I'll go through what the exact one, because what I read was not what you're saying.
Yeah. I think, Rishi, what you are probably referring to is, there is something else which says that the manufacturers will be permitted to sell, distribute insurance products of other companies which are not competing. I think it is to do with that.
Exactly where you referenced this.
Yeah. It is on page 38 of part one document. There is a second bullet on that.
Okay.
It is categorically talking about IDP. So they are saying an IDP cannot sell competing products of two insurers. Example, health product of a GI and a product of a health insurer, which in my understanding made it exclusive. I mean, made the agency exclusive. Now I understand the point about one agent selling multiple insurers, but currently what would have been happening is an agent and his wife maybe cumulatively selling four different health insurance policies. One GI, one SAHI.
I have got-
For each of those individuals.
I think where it is coming from is, the whole logic of open architecture, where the open architecture distributor gets lower because he has a wider product portfolio, therefore has to make less effort than a closed architecture agent who does not have the same product portfolio. Fair enough. I understand where they are coming from. But in terms of practical, on-the-ground impact, I do not see it happening. In any case, the agents figure out ways to They are limited brokers rather than agents.
Yeah. It was still half the number of insurers that they would be able to sell now versus in the past, no matter what that cumulative number is. Is what I was trying to arrive at.
Yeah. Fair. I think this is something that we'll probably give some feedback and comment on. Yeah.
Understood. Just the second thing is, PB Fintech has made a couple of comments in their call. One was the fact that with the lower commissions, especially on the health side, it starts becoming untenable for a lot of distributors from a profitability perspective. Second aspect is that, on this consultation paper, distributors were actually not consulted. Right? Despite it being a distribution reform. You made some comments initially wherein you said that health will still be reasonably profitable compared to how globally the trail commission and everything are. Just wanted to understand, what do you think about these two comments versus what you said in your opening remarks?
I was referring to 10% trailing commission and saying that, I don't know of any other product that offers lifelong 10% trailing commission. I guess in this case it will be 5%. Look, frankly, it's a function of how you build your business model. It's probably not appropriate for me to comment on whether distributors were consulted or not. Actually, I'm not aware of the consultation process that the authority went through to arrive at what they've arrived at. Not appropriate for me to comment on that also.
Sure, sir. No problem. Thank you so much.
Yeah.
Yeah. Thanks, Rishi. Manjeet from Samya, please go ahead.
Hi. Good evening. I had three questions. First, if you could help me understand out of about INR 8,600 crore GWP at FY 2026 on one buy-in basis, what was the contribution of attachment products for that B2B2C, which you sort of mentioned?
We can talk about latest numbers, Q1. So that would be more appropriate. So let's say out of INR 100, around INR 15 odd would be appended.
B2B2C.
Yeah, B2B2C, which is sold to both PSU banks, private banks, and non-PSUs.
Correct. Okay. The comment you made in context of that product being sort of some 100% CISR product. If that 15% of your mix sort of comes under pressure, probably degrows. We do not know how it pans out, but let us say it does not grow or degrows and the mix percentage of that product comes down over time. Would not that actually end up impacting your CISR? I thought I heard you say it will not impact you. I was a bit confused.
No. Actually, I was saying that if you see overall, how it will impact, yes. For that book there will be impact, but that will be more than offset by reduction in commission we are supposed to pay on renewal book and your book health care, which is retail. So in terms of profitability, it will only improve.
Okay. Just continuation on CISR on an overall basis. The 99% of CISR by FY 2029, which you gave, sort of mentioned as our target. I was just curious again, when you mentioned in one of your replies that it is a net positive and probably it accelerates or there is a net positive outcome to that 99%. I am again just thinking on first principles, insurance, like loans, is a commodity product, right? There is not lot of difference. If any incremental gains we get because of those policy changes which have happened, would not that get competed away in terms of insurers sort of then driving down prices? I mean, by sense of the steady state economics of this business model from their mid-teen ROEs, right? Why should that CISR improvement be structural and then structurally the ROEs go up?
We did not say the CISR improvement is structural, Manjeet. We only said the path to getting there could be accelerated.
And then with timing sort of-
Yeah. Look, the business, nowhere are we saying that you should think about this as a higher ROE business. You should continue to think about this as a mid to high teens ROE business. Not necessarily because of competition reasons, but let's say that you should think about it as a utility business. That doesn't go away, but instead of FY 2029, it could become FY 2028 is the point that I made. Look, this is also a choice to balance the competitive dynamic and all that, but 98%, 99% CISR, which delivers 15% to 17%, 18% ROE is where we choose to run this business.
Perfect.
Yeah.
The way I should think about this is come, let's say, FY 2029 or our long-term target on a net basis, despite all these regulatory changes, whatever happens in the short term will be above 99% combined and a mid-teen ROE business. If there's any benefit in the RHI, it's sort of combined and then canceled.
Yeah, there is no change in that quote-unquote, "guidance." As we discussed earlier, come Q2, we will have more detailed discussions after we have done our own modeling to make the case on whether it is earlier or not, or it stays the course. That is the only major point I am making.
Got it. Last, one conceptual question. Just to understand how the commission first finally translate into premiums. So I am using, let us say our customer is paying us INR 30,000 premium for the first year, and they are just coming and taking our policy, right? If we are paying 30% commission, we are giving 10% to our agent within that. Right? Now, if that commission is dropped from 30% to 20%, why should that INR 30,000 remain INR 30,000? Shouldn't it become something like INR 26,000? I think there was some discussion earlier when you were alluding to we won't change price, the future price actually go down. But I would have thought the initial impact should come up front itself because the commission which you are not paying now should get adjusted lower for the same sum insurance. So that is where I was a bit confused conceptually.
Actually, I will give the example of how things played out with GST and open this to Ankur and Vishwa. See, effectively, the 18% reduction in premium on account of GST did not result in a lower ticket price. A lot of customers chose to upgrade covers. Either they bought higher sum insurance or at the time of renewal, they chose to upgrade covers. So effectively, ticket sizes went up.
The right way to think about it is the customer has a certain budget for health insurance. If there is any saving, he does not change his budget lower, he will continue to spend that amount. Like most customers.
Yeah. Because the ticket size is an average on the entire portfolio. A lot of customers who are willing to buy a certain price point, they continue to spend that budget, to your point. Customers who are sitting on the fence at the margin, they come in and buy insurance.
Just to take your example, you said INR 30,000 is the ticket size. Commission has dropped from 30% to 20%, the example you took. That INR 30,000, and every year we look at all the products, we look at what is our expense in terms of commission and overheads. What is our target loss ratio? Based on that we revise premium. What we are saying is, it is not that tomorrow INR 30,000 will become INR 26,000. What we are saying is while repricing, while looking at that, we will say, "Okay, this INR 30,000 is okay.
It may stay back." Loss ratio will increase because, of course, there's price inflation. What we wanted to say is it's not that the moment it is implemented, the rates will go down immediately. What we are saying is it will slow down the price revision cycle. We may decide not to increase price for one year for any product or only for product rates per se.
Got it. Thank you for answering my questions.
Yeah. Thank you. Shreya, please go ahead.
Yeah. Thank you for the opportunity. Hope I am audible. My question is on the EOM pathway that you have spoken about. You are saying 35% to 25%, it seems easy right now. Now, your commission rates are at 21%. Probably they will come down to 13%. Something like 7%, 8% comes from there only. But your journey from 25% to 20% will need you to make cuts in your operating expenses or maybe an operating leverage if it can play out at all. If you can help me understand what all things on the operating expense side can be moved eventually for you to reach that 20% level. Because till 25%, I can understand that the commissions can help you quite significantly. That is my only question. Thank you.
Sure. In your example, let us say you said 21% is commission. It is ballpark there. So 34% is our EOM. 13% is our other overheads. Other overheads is all fixed costs. It also includes sales manpower, which is attributed to new business. Now, assume this, let us say INR 10,000 crore EWP becomes INR 20,000 crore EWP. So automatically, the increase in those expenses will not be to the extent of two times. That will be much lower. And that is the operating leverage which will play.
Right. So largely, you are expecting the operating leverage bit to play out for you in the non-commission cuts. As in, there is no need for you to trim down any other expenses. As in properly cut expenses. That is not a need for you at all. Is it?
No, that is not. Yeah, that is fair. Yeah. That is one thing.
Okay. Great. That sounds great. Thank you so much.
Mohit, please go ahead.
Mohit, do you have any question or the hand is raised by mistake?
No. Sorry, I was on mute. Hello, can you hear now?
Yeah.
Yeah. Sir, the question is on the renewals. Basically, if commissions on renewals are reduced as we spoke earlier, which is the understanding on a retrospective basis also, then the pricing of renewals will also be adjusted accordingly for the customer. Is that the right understanding or do you get to keep the benefit of the reduction on renewals?
See, ultimately, we will pass on this benefit, because we said that we want to maintain CISR, let's say, 90% to 99% from 99%. Ultimately, it will get passed, but it is the timing. For example, let's say every product will have a cycle. If we feel that this repricing was due in this quarter, we may decide not to increase price. What effectively that means is the loss ratio will go up to that extent. For every product, we need to see.
Okay. Understood.
Yeah.
By stating that, look—
Yeah. It's only a timing topic.
Yeah.
Yeah.
Got it. Sir, in that case, in general, this event is a profitability neutral event. There might be some timing things, but in general, it's a profitability neutral event, right? That understanding is correct, right?
Would you describe it as profit? I mean,
Long term.
We can definitely, yeah.
Short term, it is profit positive.
Yeah. Look, as I said, we believe it will accelerate our journey towards 99% or 98% CISR. In the short term, it is likely profitability positive. But as Ankur also mentioned and I mentioned earlier, our objective is to run this business at between 98% and 99% CISR. The point is, Vishwanath mentioned that the balance benefit we will pass on to the customer so that we are able to drive growth, drive more sustainable growth, offer great value, et cetera.
Okay. The reason you say acceleration is not because of the unit economic change, but because there may be probably additional demand due to better pricing and affordability of the product. Is that correct?
There will be more demand and there will be, because of the pricing differences, some level of immediate flow-through in the profit. Right?
Yeah.
Sure. Understood. Very clear. Thanks.
Shobhit, please go ahead.
Hi, sir. Thank you for the opportunity. I have two, three questions. Sir, first is on the rationalization, which we have seen. I think the regulator has clearly declared it earlier that they want to solve for affordability on the health insurance side of things. It is clearly evident from the way they have rationalized the commissions. Should we not expect any kind of rationalization in terms of the premiums which the customers will pay? I agree with your argument that post the GST, we have seen increase in ticket sizes and all of that. Should we continue to see that kind of way again in this scenario? Secondly, if I look at the renewal commissions, particularly for the entities like banks or brokers, it has been meaningfully reduced to very low level, which is 5%. So can we expect any impact on the consistency?
Because primarily onto the banker side, the third party distribution RM is actually supposed to have multiple products, and he might lose his focus on this renewal fees or the renewal commissions or the renewal incentives for that. Lastly, because now on the health insurance side, one thing is the claims cost and other is the distribution payout cost. It says the distribution payout cost has largely been addressed by the regulators. Does this segment becomes much more viable in terms of profitability? Do we expect more multi-line insurers getting into this segment? Because there were some issues with regards to the claims earlier, the commission base as well. I think one of that has largely been addressed too by the IRDAI. Thank you, sir.
Okay. On renewal, Ankur, will you take up?
Yeah.
On regulatory position on premiums.
What was the question?
The question was-
I will take the renewal one.
I will take the renewal one. Largely for banks and other distributors, renewals is largely managed by us. Even if it's a lower payout going to them, we are the ones who are calling consumers, calling everyone else, doing all of the field and the tech and the communication and everything else. The strategy level also and the execution level also, we are the ones who are doing renewals for the bank side. Banks and the institutional side, I'm not talking about the agent side whereby they also do a lot of work, et cetera. We don't see any reason why it should change the renewal ratios or anything else should change based on that. Any which way, the seller in a bank is there today.
Tomorrow, he's in some other branch, et cetera. He's not the one who is regularly in touch with the consumer after a year or two. It is an insurance company. The first one is selling as a representation is done. New business is done by both our employee and the bank seller. But the renewal is generally done by us. Hence, we don't see any reason why there should be any change, so to say, in that part.
Just a small follow-up.
Yeah, go ahead.
Just a small follow-up, Ankur, on this. You mentioned about the banking channel or the agency channel. What about the digital distribution channel? Because these channels have been aggressively calling out that we have been helping insurers and improving the persistence in all of that. What will happen to those channels?
You are right. As I mentioned, bank side, et cetera, we were the ones. But when you look at others, which is agency, it is the agent. For digital distributors, they and we, both of us do it together. You are right in saying that. Is 5% good enough for the book size which they have and the expenses which they do on renewals? It is still a decent amount. Book size is huge for them, and the expense is hardly any from a renewal perspective. Hence it is still decent enough. Any which ways, the digital distribution, I am assuming there is one large. He doesn't have a philosophy of converting one to other, the other to other. Any which ways, port also is not a one whereby he gets any commission.
There is not something which he really looks at, and he earns on cross-sell and other things, et cetera, when the consumer is there. There is no large benefit for him to not to do it because it will still be net positive for him. Obviously, when he compares with what is given today versus what will come tomorrow is very different. But it still does not mean that he will not do it because there is still a good amount of money there in that business as well.
I think the other point I will make is, if you look at our statistics, 85%, 86% of renewals happen digitally. And given Gen AI, the requirement to actually have a human being talk to renew is becoming less and less. I can very easily imagine a scenario in a few months from now where you have a voice bot handling the entire renewal journey for all customers, regardless of channels. I think that, in my mind, is a reasonably solved problem and not something that we should concern ourselves with respect to what is the role of a partner or us. Frankly, whether it is us or a partner, everything is going to be done by a bot in a few months from today, so it really does not matter.
I think the first question was this rationalization of commission. So will there be rationalization of pricing also? Shobhit, that was the question. In terms of that, so how it works, let me just take you through. Every year, a pundit actually is supposed to look at all the products, look at all the assumptions and expense assumptions. Basically, commission is one of the important assumptions, and basis that the target loss ratio is derived. And what is the loss ratio of last year adjusted with inflation? What is the prospective loss ratio? If there is difference in prospective loss ratio, which is, let us say, higher than target loss ratio, you increase premium. Now, same thing will happen. Let us say this is effective 1st of April 2027.
Now, last quarter, when we do our annual operating plan, actually, I think we look at all the products, say, okay, basis all the things including medical inflation, et cetera, what is going to be the prospective loss ratio? Now, expense assumptions will undergo change. What that means is the target loss ratio can go up. Now, if target loss ratio is equivalent to prospective loss ratio, we can decide not to increase price for any product in next financial year, which is equivalent to rationalization of pricing.
Yeah. To your point on more insurance companies coming in today, this is my point of view. Starting an insurance company and building out a retail franchise is INR 3,000 to INR 5,000 crores in terms of capital that you are looking at. With what we are seeing around the expense of management limits, a five-year requirement to comply to whatever is the limit today, and two years after that to 25% is a pretty tall ask. Actually, I would flip the question and ask whoever it is who is starting a company or wanting to start one, what is their logic to start one given this regulatory posture?
Okay.
In my mind, it is not possible to build a retail health franchise in seven years' time while complying to, keeping aside commission levels, just the requirements in infrastructure build-out around. If you said agency is the model that you want to drive or even bancassurance, the requirements of putting headcount on the ground, building brand, investing in technology, et cetera. In my experience with all two companies that I have worked with is at least a 10-year journey, and it is a hard journey to get to 25% at the end of that journey. So I would actually flip the question and ask whoever it is who wants to start, what is their logic to start?
Got it.
That is actually not something that I worry about in terms of new entrants.
Why I asked this question was because in the last two, three years, we have seen a few of the multi-lines, they are becoming aggressive onto the retail health side. Now, we had a call with a digital partner as well later during the day. They had mentioned that they are the one who has been consistently adding new lives to the industry, which is helping industry to maintain or contain their overall loss issues. Now, because they are going to rationalize in terms of their advertisement spends and they will now see rational growth rather than what they were doing earlier. Do you expect any kind of loss ratio related impacts which will come in for the industry going forward?
Look, at the end of the day, the quality of book, as I mentioned, clearly the company that you're talking about, we have the highest respect for, and they have done an incredible job in building the category for the country. I have no hesitation in making that statement. But in terms of quality of book and claims ratio, ultimately it is largely between the company and the distribution partner. I would not shy away from saying that it's, at the end of the day, something that we need to take accountability for and not outsource that to anyone else. Clearly, the quality of the book there is very high. But I would not belittle the role that we've played as an operator in getting it. I'm talking about myself as a company, not necessarily about the industry.
Clearly, I think that's something that the underwriting claim is something that as an operator coming from a Bupa stable, it is something that we also take a lot of pride on in terms of our own capabilities, understanding around that.
Got it. Thank you for the detailed answer, sir. Vishwa, just one clarification on the EOM side with the regulator that has come out. These expenses which would be considered for calculation of this EOM, would that be the earlier IGAAP basis or will that be on the Ind AS basis? Just a clarification on that. Is there any clarification from IRDAI?
See, expense of management has nothing to do with IGAAP or Ind AS because it is at gross level so far. Gross commission, gross total expenses, no reinsurance, and divided by gross direct premium. Earlier it was GWP, and in our case, we do not have any inward reinsurance, but in some cases, inward reinsurance was helping. It will be GDPI. That you can think of this as go like underwriting basis, whatever business you have written in this year, nothing to do with amortization, et cetera. IGAAP, generally you have reinsurance, so those impact will not be there. It is different formula, and we are comfortable with this.
Got it. Thank you. This was really helpful. Thank you.
Thank you. I guess there are no more questions in the queue. I guess we will end the call now. Thanks a lot again, everyone, for joining us and hearing our views.
Thank you.
Thank you.
Thank you. Appreciate the time.