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Money won’t move from insurers due to tax rules: ICICI Prudential MD

In the first quarter of this financial year, ICICI Prudential Life witnessed a 100 basis points year-on-year fall in its VNB margin at 30%.

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Last Updated - September 1, 2023
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ICICI Prudential Life Insurance’s MD and CEO Anup Bagchi believes that despite the new tax rule, where proceeds from non-Ulip products exceeding Rs. 5 lakh annual premium have become taxable, the industry will not be impacted too much. The money, he said, would “largely” remain in the insurance industry as long as there aren’t substitute products in the financial sector that can replace the long-term nature of insurance products.

“Yes, the number of customers (with greater than Rs. 5 lakh annual premium policies) has certainly decreased. And I am sure that it is for everybody. But, it is not disappearing due to taxation. So, we are seeing that this money is now shifting towards Ulips and more participating balanced kinds of products. So, this money is staying by and large in the system. I don’t think that there has been too much leakage happened because of this,” said Bagchi.

At a time when private sector insurers’ value of new business (VNB) is on the decline, the private sector insurer has also been emphasising on a “diversified” product mix and “right” set of customers rather than being fixated on VNB margin.

“The VNB margin should be led by the product mix and the customer mix and the channel mix. And it should not be an end-all in itself…I feel there should be healthy margins. Healthy margins create healthy companies. So, it is not that the margins should not be focussed on, but margins should not be fixated on,” added Bagchi.

According to him, margins should be an outcome of the right set of customers who have demands for the right kind of products. “If we don’t have the right set of customers, we would have to create the demands for the right set of customers for the right kind of products, and margin will be an outcome of that. And that will be our approach and that has been our approach even in the first quarter.”

In the first quarter of this financial year, ICICI Prudential Life witnessed a 100 basis points year-on-year fall in its VNB margin at 30%. Annual premium equivalent (APE) witnessed a 3.9% y-o-y fall at Rs. 1461 crore during the first quarter and VNB declined 7% y-o-y at Rs. 438 crore during the period.

witnessed a 100 basis points year-on-year fall in its VNB margin at 30%. Annual premium equivalent (APE) witnessed a 3.9% y-o-y fall at Rs. 1461 crore during the first quarter and VNB declined 7% y-o-y at Rs. 438 crore during the period.

“If you see, a little bit of margin compression has happened in general in the industry. Essentially, this margin compressions have happened because greater than Rs. 5 lakh (policies) were guaranteed products which have a slightly higher margin that got compression,” said Bagchi, who took over as the MD & CEO of the private sector life insurance company in the month of June.

With insurers now having the flexibility to pay commissions to agents and intermediaries as per the new regulations, the ICICI Prudential Life MD opined that “it is a very good” measure taken by regulator Irdai because it gives great flexibility to the industry players.

“Because it gives the flexibility to cater to the different kinds of partners as many partners would want a trail base commission. The moment you give a trail base commission, basically you can link it up to quality parameters on persistency and surrender, among others.”

At the end of the first quarter of FY24, the life insurer’s assets under management (AUM) stood at around Rs. 2.7 trillion, while sum assured was at around Rs. 2.4 trillion.

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