Niva Bupa Health Insurance Company Limited (NIVABUPA) Earnings Call Transcript
September 24, 2026
Earnings Call Speaker Segments
Yes, everyone. Good evening. Are you Audible?
[indiscernible].
Ok. So thanks a lot for tuning up as such as a Lots we felt it is pertinent that before everybody starts making their own assumptions regarding -- in light of the recent circular from IID around distribution reform, We felt it is pertinent that you hear the company's side hall. So yes, essentially, we have the entire top management, Mr. Krishnan Vishaan -- so I guess the way we will do it, we will -- I will let Krishnan to have some opening remarks. And after that, we can open the floor to Q&A. Reflect 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 1 by 1 to for the participant to Amiran ask their question. So you have it there without wasting any further time or to this Sure.
Am I audible -- just to recur. Perfect. So thank you, everyone, for making time. Just 1 correction to what Himanshu mentioned, it is a consultation paper. -- that IRD has released. And our best understanding of -- 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, but that's our understanding at this point in time. So broadly, we did our own internal analysis of what this means for us and I thought we'd articulate our argue in terms of what it means. I mean if I have to make 1 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 that is the GST experience of the last 11 or 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 have 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 -- and also from a distribution standpoint, we do expect volumes to ameliorate some of the impact of Norton take rates, right? So this is exactly the commentary we had made as a management team at the annual of GST when we indicated that we intend to pass on commission to distribution and also whole prices in the expectation of demand. Our belief -- and 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. But 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, for the starting point of a particular distribution channel list. I want to break this out channel by channel, from our own standpoint. -- the 4 big retail engines we have as a company, our agency and on agency, the recommendation for commission levels is 20% and 10%. On trail, it is not very different from where we already operate. And on you, there is -- there is a difference, but not a materially big difference relative to where we operate. So 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 10% of what we write as a company. And here again, -- we believe that there's going to be a significant net positive, both on growth as well as boon growth as well as economics from a from a company standpoint. As far as bank is concerned, there is a relatively sharp fall with respect to where commissions or acquisition cost stands today. But our belief is that -- the demand and the growth on retail health in banks will only continue to be stronger than perhaps what it is. And I'll give you an example of how we dealt with the GST input tax credit to explain how we believe this will play out. So on the back of passing on ITC, what we did with our bank partners is to go and invest in incremental head count to gather more business, which meant that they would not see drop in absolute fee income. And effectively, how it has played out over the last 12 months is that our monthly run rate on retail business with banks actually doubled. So we believe that our strategy with banks will be to invest in growing our retail business. And the model with banks is largely a lead model in the sense that the banks pass on leads to our frontline sales teams to man-bank branches and get business. So we believe that the impact of these changes -- of these proposed changes with respect to our bank distribution, again, will be positive from a growth standpoint, and we believe that economics not 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, policy Gazaris the largest engine there. Here, our point of view is that growth I think there's enough enough levers at play for policy Masa to continue what is a fantastic growth story and a growth engine. And 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 that it eventually lands in terms of what the regulator final regulations are -- so that's 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 the right incremental economic value, they are fairly well positioned. I sort of our summary on the retail side. On the B2B side, I guess what matters is the overall pricing environment, so in some sense, we see our positioning here is either neutral or maybe marginally positive, depending on how pricing plays out. But clearly, overall, the overall pricing environment is the bigger lever. So -- and this is about 8%, 9% of our overall book. So neutral to maybe incrementally positive is what we understand. That leaves us with the B2B2C part of our book. which is the loan linked business that we do with our banks as well as nonbanks, 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. But at the same time, we see a fairly sizable opportunity opening up for us because plants as well as nonbanks are allowed roughly 5% premium as a proportion of -- as a percentage to loan value. And 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 status, either through new counters or an 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 through identifying systematically, which counters will open up and where do we have opportunities, therefore, that in the improved penetration rate. And the other 1 that I do want to point out where we've already signed a formal MOU is a combi partnership with the life insurance company. So the combination of term life or credit life plus health is something that we believe should be mitigant as far as this part of our business is concerned. How it plays out, we are not in a position to exactly quantify at this point in time. But we're comfortable, at least from a 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, course -- I guess 1 last comment is on expensive management. We have done some preliminary modeling. We are in a comfortable situation to meet the 2 years certainly, the 2-year requirement of 25%. So again, I just not lay this out there. So open to your questions. At this point, Nishu, I think.
Yes, I mean to our Q&A, I mean, because I will try to -- I will moderate the same, but I request so if people can raise hands and then I will mention the name and require the participant to unmute the question.
How do you see the state on rate and end in item.
Yes.
Can you hear me? Just a few points first the last point that you mentioned about expense of management being met at 25% in 2 years. that is 35% going down to 25%, right? And that's a big move. Largely, that would be because of commissions or it will be some other measures that we're considering that will allow you to kind of with that number?
Subash, on this 34-odd percent last financially anyway in 2 years' time, which is -- in fact, this year and 2 years, it would have gone down more than -- now on top of this, this commission moderation will definitely help, and we are very confident of meeting this 25%. And in fact, I would say, 20% also in 5 years' time.
So price broadly the sale today stands at trail, if you look at it, it's 10 and 5 in what has been recommended right? And out of the 33%, 34% that we are at today, roughly 20% is commissioned. 22% is commissioned. So -- if you just did the math, just on commission falling, it's it should -- it sounds on itself.
And this also accounts for the increase in manpower, which Christian sir has talked about. So even after constraining all those, we are comfortable lash.
But also on the other hand, your premium rates will go down. And so your GDP number will definitely be lower than what you would have worked with. And as a percentage, will you be -- the total that you would wanted to spend that will also go down in absolute terms. So would you still be comfortable because you are also talking about investing in other channels and investing in growth. So will you still be -- have you factored that in...
Why do you say premium rates will go down?
If admissions go down, you will have to pass on, right? And that's what the growth driver would be, right, in the premiums if the commissions go down like in GST, when the rate was cut, you had to bring down the premium rates.
No, we did not bring down the premium rates. We -- I mean, just to be clear, -- we did not bring down the premium rates. We kept the premium at the same.
Yes, yes. But that was a GST SP1 As part in December, but here the commissions are cut, you wouldn't kind of reprice the products down is what you're saying?
Yes. Yes, we would -- yes. So the same thing that we did with we would hold prices for longer than we would have otherwise done, so right? 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 comply in our case.
So just to on this less a combined ratio is whatever it is 98%, 99% -- now commission is going down. To that extent, loss ratio will increase because we will increase premium slower than otherwise you would have.
Got that. And the other question was, overall, as you see these measures which channel, like you kind of articulated as to which channel, but I think you came across as positive across the channels, except for some bit of pressure on a digital distributor like fintech -- but all the channels like digital agents have gone through already a cut of commissions in the past after GST. Now again, there will be another 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 kind of recalibrate themselves and 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 '28., How would the growth kind of meat especially given that we were becoming from a high base of the first half of FY '27?
You want to take a step and then I'll add.
Look, from an overall growth for the industry, we started to work out various things because the base attract would also be there beyond everything else. But largely, 2 points I want to mention. First, we have been taken channel, which is. 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've also seen is in the last 5 years, -- the ticket size for 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 so their overall income, what we feel is not going down. there'll be a lot of things in the measures industry is already taking to build the demand. So if the demand still holds up and we are able to get that then the income may not go down. That's our today's perspective, as today's view is today. This is for agency channel, short-term 3 months, 1 quarter, 2 quarters, will there be an impact? Definitely, there can be some impact but that's on the short number. Largely, what we see is retail business will not get impacted over a short to medium term. Retail business will only benefit basis what has come out in the consultation.
And Rishi, when you step back and keep aside levels at which these operate today, which products anywhere in the world or in India gives you 10% guaranteed rate I mean you have to take 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. And as Anko said, there is aging, there is upsell, there's cross-sell -- so the absolute income stream actually only grows over time in a health book. And actually, if you look at it, even adjusting for ticket size differences with respect to life, -- it is more attractive. It is the more attractive than distributing life insurance on a like-to-like basis.
Just last 1 follow-up and then I'll move back in the queue. Can you talk about the ticket sizes increasing in -- 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 we kind of maintained its payout and that's the reason it could increase its slippage size, right? There's no such thing happening here where the customer is getting any benefit. What will then kind of drive the demand from the customer side?
Requirement to increase rates is that much lower, no Prayesh, -- see 1 is explicit. The other is implicit. But ultimately, economically both at the same right.
Yes, absolutely. So earlier, he was paying 118 after GST -- now this 100, let's say, every year is increasing, say, by 10%. So this will not increase by 110 crore. So a related basis, yes, is benefiting.
Yes, Mr. Chin, you may please go ahead. means question.
And just 1 or 2 you mentioned that -- for the B2B business, it will either be neutral or positive. But I mean, the way I think about it is that if EUM guidelines are getting tougher, then there are very high chances that again, this whole thing about some of the players trying to sort of step up on the B2B business to manage the EM guidelines. I mean they could tend to do that. And again, that business could become suboptimal. Do you see that risk?
Yes. I mean basically, my starting point, mission is it cannot be worse than what it is today. from a pricing standpoint...
It's not going -- improving either, right? I'm looking at.
Yes. So when I say neutral or positive, I mean look at the pricing cycle cannot be worse than what it is today, and hopefully, it globally improves is the limited point I'm making.
Got it. Now 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. And as I understand, there is an expectation that this will be passed on to the customer. But does it really mean that if I want to buy a health insurance policy, it will be cheaper on to a bank or a policy base than, let's say, buying through an agent.
So the regulation talks about it. That is in theory permitted even today. But it is about how do you manage -- so today, for example, -- we offer the same price everywhere, except in our right to consumer business. So that's really a tactical multichannel contact management topic than anything else mission.
No, I agree. But the point is that incrementally now, this will be monitored, right? And this -- I mean, if it is not done, then it will probably tantamount profit are, right? I mean so Idea is going to probably monitor it very carefully because the whole intention of cutting commissions was to pass on. So in any case, if it has not passed on and probably it will be. And I think we just had a call with the PB fintech management. but I think they were also pretty evocative about the fact that we are -- 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.
Fed, we'll have to work through it. Seultimately, 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 probably make product channel decisions as we move along. To be honest, I'm less worried about the monitoring part because ultimately, what patters 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 basis 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 has been move along as we limit at this point in.
And just finally, B2C business. I think what you did kind of say that there will be a drop in business over here and you'll try to probably compensate it by opening more counters. But just curious, isn't this the most profitable business at a combined level for you? And in that sense, if the ratio of this business goes down, it kind of puts probably bigger pressure on the overall combat.
See, B2B2C business, it has a combined ratio which is less than 100. But at the same time, point is that there's no lifetime value. So it is 1 time sale. So if you ask me in terms of attractiveness, retail is much more attractive because it has a sizable lifetime value. So in that sense, it is more tactic.
A fair point, but I'm saying that, that is something which has supported the financials, right, for the last 2 years and probably even in the forecast for next 2 years, that would be 1 of the pillars, maybe not for volume, but for value per se. And I think that's something which -- I mean, that's the best that is sort of shaking right now.
Yes. But in terms of -- if we just say pure profitability, any loss year in contribution will be more than offset by Sister -- because of this change in commission.
Yes. Got it. And just 1 last if you can. What do you think happens to platforms like policy bursaries, there's some scope in which they can charge higher commissions or they can become advisers to you or partners to you or something like that?
So said, I think by the consultation paper has come out, not just in PolicyBazaars case, but across the board for all distribution, it is quite clear on those and ones, right? And whatever comes out at the end of the process is something that we will all follow. In terms of impact on policy Masa, Look, obviously, they have already spoken to you, but they are a great team. I'm 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 work through.
Got it. Sorry, if I can, can I squeeze 1 more question. Just last one. See, on the direct business, right now, the direct business becomes less attractive, right? So earlier direct business was a lot that there's 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. And in that sense, the investments that you probably make in the DTC vertical will probably be lesser right from here on?
As of now, not really though we are still assessing some of the things we are still assessing. 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% and the D2C -- the answer is yes. So it will still be more attractive than other channels. And hence, in investments will still go on into the direct-to-consumer business.
But probably the rigor with which you or maybe some of your peers will build the direct-to-consumer business is now going to be lower if we start -- is that a fair day?
No, I mean, look, the advantage and value for direct business in terms of brand building, direct customer ownership, I mean, the economic value at the minimum stay is the same, right? And today, it is the most attractive in terms of economic value from a company standpoint. Our assessment is that, that will give or take, the anode will stand even after these changes. So given that, I don't see a reason why we would invest less in that channel Nitin.
Yes. requesting Mohit 2, please unmute and ask the question.
Sir, the first question is that in the current regime, the difference in the quality of the customer being sourced was basically being calculated by the remuneration of that particular channel. So if channel was bringing in good quality customers from they were being remunerated for it. Now with this new regime that is being put forward in this paper, if that kind of flexibility is taken away to incentivize the channel with respect to the quality of the customers 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. So just wanted to understand that part.
I mean, what the recommendation has is a seen, it's not the floor, right? So our ability to play within that ceiling which is what we do today, it says that the ceiling is lower than what it is in general. And also, we do have the ability to direct the 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. So 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 Wish Hank, do you have any other.
But just Chinese your response. But so far, we were able to drive a uniform price across the channel because wearing the distributor sort of incentivization, which was factoring in the quality. But given the distributor incentivization will become more in form -- and obviously, the policy, which different channels bring in will obviously remain as some of the channels will bring in good quality and some of them will be a little bit more inferior quality. how -- then there will be a price returns 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. So is that understanding primary currently?
So look, the decision on wearing price across channels, I mean, that ability is there even today, just to be clear, right? And we exercise it in the case of our back to consumer channel, we do know -- we choose not excesses. Our belief is 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. So that's point one. Second is to your point on quality of business, look, the primary lever to quality of business is underwriting, right? So that underwriting stance continues. What you're referring to is yes, so it's not that underwriting is different or last. 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 pen. So when you say quality of business, fundamentally, the gate there is underwriting and that will continue to be what it is. I think we have discussed the -- I guess, the third element is the whole -- how do we incentivize channel basis or lifetime value logic. And there I said, between our sales teams and the distribution -- of course, now there is a floor, but those -- that lever is available, and we'll have to figure out how we're trying to adapt that lever.
Got it. And sir, second question is around -- and maybe it's more technical in nature is around furthering of commissions on the business that is already written and will it be renewed in subsequent years. through -- in all is this the reduction of commissions on the already written business is on a prospective basis or on a retro spectrum basis, color on that.
We are currently reading at as if it is basis, whatever business has already done also renewals for that also is at a lower amount. But we will see clarity from the regulator in terms of what is their overall intent there. But current reading is that this is for any business, which is renewal whenever it gets implemented, let's assume an implementation date of first April. So any business which was written in but now renewed in 27 would also come under the new regime, but we will seek for clarity from the regulator on what they intend to do.
And so basically, the comment that you made earlier in terms of achieving the AUM is in this context. So if it is only on a prospective basis, then there will be some new you'll need to see how to manage it, right, because you'll still be paying a higher commission on the back book?
No. Our view is still that this is basis that only because otherwise, it will take 5, 6 more years for someone to really structurally change everything. I don't think so if the regulator has that view.
Because if you read the 2 in conjunction net commission, it applies on all in-force business from, let's say, April 2027. You can't sort of have 1 moving in the other, not moving. Yes.
Yes. Amato, please a new tag.
A couple of them. Firstly, are you giving any combined ratio guidance? Because we used to guide for 98%, 99% in 2, 3 years' time? Now does that take a step down because of what's happening on the expense ratio side?
Saba, I thought you said, does that get accelerated start.
No. As in the number, yes, the number now takes a step down as it becomes better in terms of your tire.
That's a 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 full scan and Ankur and team are going to do that with all of our distribution, we will take about a cost order 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 combined business plan that we have guided you on.
Got it. Got it. And 1 follow-up on PB Fintech as a channel. As per them, their commissions on retail health becomes 1/3 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 1/3 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 drastical induces for them?
Look, 2 things. Obviously, they are actions are our best place to answer that question, I'm sure that they've already done it. I mean I guess at, let's say -- so 2 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 an NBFC world tell us. So we'll see in terms of what finally comes. I guess the second thing is today's digital world 1 can envisage digital iborn can envisage a lot of the work at the back end and on the renewal side being done through technology. So I guess it's going to be some combination of these 2 in terms of a things eventually land. My opening remark was -- it's a team that we have the greatest respect for us. So I'm sure -- they will find ways to continue to grow materially faster than industry while managing economics for themselves.
Fair point. Two quick questions. Bank retail health, what is the current commission -- can you give some color?
It's not something we have put out in the public domain so.
Got it. But Christian, can you just help us at least understand that the new commission suggested, will this still be a profitable proposition for the banks?
The short answer to that is yes, yes because it is additive and incremental. As I said, the model with our bank branches 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 now across locations. But by and large, the sales teams belong to the insurance companies when it's life down like health. So it is additive without with hardly any variable cost. And it's basically a car sell product where they're expecting existing customer base and existing assets, if you will.
Sorry, you wanted to I think there's an opportunity for us as well there. But Cumins going down, we have an opportunity to probably invest more in some of those channels to grow our business there.
And you also making a point on PSU private or elaborate on that.
Yes. And also, Saugata, we have to type of patisiran models today. One is private and 1 is the DSU. We also get good chunk of business, we are buying the PSUs operating I think there, the commission is not a driving factor. There's a factor to drive businesses, customer an intent, our execution, et cetera, 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. And also on the private side, I have a similar view probably difficulty in terms of all of that, what Mr. Kristian mentioned, but yes, we -- at least in our view, bancassurance channel where retail definitely will retail business will go up.
And look, of course, banks and BFCs are economic actors from the point of view of fee income, but also I mean there is a reasonably good realization. That's the #1 reason for people drawing down on savings, breaking deposits is hospitalization expense across some banks, and I'm 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 can't imagine why a bank say you want to stop distributing. Whatever is coming is incremental, it's less than more could have been the case otherwise. And obviously, effort is being put by the insurance company. Second is on the asset side. I will use the language used by 1 of the leaders in the NBFC business. The 3 big reasons -- while does delinquency in loans describes in the MDh, right, marriage debt and hospitalization. So again, the product is a needed product. Of course, the economics are very, very attractive to them in terms of what it means for ROE. But the fundamental starting point in both cases is the product is needed. And economics, of course, is something that will need to be calibrated and adjusted and sound 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 in BC.
Got it. And are you giving the breakup how much of your bank assurance is PSU currently?
Right at the back of 356 Christian? 25 is PSC and private Yes.
Perfect. And just to clarify, you said agency after the change, it will be NPV positive for them?
LTV positive sorry.
For or the agency channel after the commission on first time and renewal changes Will it be actually over the lifetime, will it be NTV-positive for them?
For the Agenus or the...
The agent.
20% and 10% lifetime sales attractive No. So a.
Like I'm not sure what the current arrangement you have. And I'm just trying to make sure that...
Yes. So the current arrangement is not -- is not dramatically different from 10 climate.
Thank you, Satu. Rishi from IIFL. Please go ahead.
Yes. Thanks on the op. There is 1 provision that has been included in the consultation paper. Is that for individual agents, an agent cannot sell competing products of 2 insurers now. So they can't sell a health product of a general insurer and a product of a health insurer, which I don't think was the case earlier and effectively leads to agency exclusivity in a way. So for example, if you have an agent and now they probably would not be selling a health policy of a lombard anymore. Can you throw some color on that seems to be reasonably positive, but we haven't seen even talking much about it. So your thoughts will be appreciated.
See, my understanding is the 1 plus 1 plus 1 on Agency will continue. I do not read anything that changes that. I mean.
So 1 plus 1 plus 1 is fine, but including beyond that, what they are saying is that an IDP cannot sell competing products of to insurers and they are giving an example where they say they cannot sell a health product of a GI and a product of a health insurer. So effectively, if an agent is selling Sahi's product then is 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, an agent is selling not just on health insurance, the selling 2, 3 has been. So when you look at the ground they are selling more number of companies. Even today, the regulations are on a low basis, family, everything else, everything else. So largely should not be different, but I'll go through what the exact 1 because what I read was not what you are saying.
Yes. I think what you're probably referring to is I mean, there's something else which says that a manufacturer will committed to sell, distribute insurance products of other companies which are not competing. I think it's to do with that.
Yes, yes. It's on Page 38 of Part 1 document. There is a second bullet on that. which -- and it is categorically talking about IDP, right? So we are saying an IDP cannot sell competing products of insurers. Example, heatproduct of a GI and a product offer has been sorted which, in my understanding, made it exclusive. I mean, made the agency exclusive. Now I understand the point about 1 agent selling multiple insurers, but Currently, what would have been happening is an agent and his wife, maybe cumulatively selling for different health in health insurance policy. One GI, on Sai each of those No, not it's.
Coming from the whole logic of open architecture that the open architecture distributor gets lower because he has a wider product portfolio therefore is to make less effort than a closed architecture agent who does not have the same product okay. anaprobably where they're coming from. But in terms of practical on the ground impact I don't see it happening in any case, the agents figure out ways to -- they are limited brokers rather than agents.
Yes. I mean it will still half the number of insurers that we would be able to sell now versus in the past. No matter what that cumulative number is what I was striving.
Yes, yes. I think this is something that we'll probably give some feedback and comment on.
Understood. And just the second thing is the PV Fintech has made a couple of comments in their call. One was the fact that with the lower commissions on especially on the health side, it starts becoming untenable for a lot of distributors from a profitability perspective. And second aspect is that on this consultation paper, distributors were actually not consulted right? And despite it being a distribution reform -- and you made some comments initially when you said that health will still be reasonably profitable compared to how globally the trail commissions and everything are. And so just wanted to understand, I mean, what do you think about these 2 comments and versus what you said in your opening remarks?
No, I was referring to 10% trade commission and saying that I don't know of any other product that offers lifelong 10% sale commission. And I guess, in this case, it will be 5%. -- look, frankly, it's a function of how you build your business model. And how -- it's probably not appropriate for me to comment on whether distributors were consulted other not aware of the consolidation process. That the authority went through at what they have arrived at. Not appropriate for me to comment on that also.
Thanks, Rishi. Manjeet from Sami.
I had 3 questions. First, if you could help me understand out of about INR 8,600 crores GWP in FY '26 on 1 by end basis. What was the contribution of attachment products for the B2B2C, which you sort of mentioned?
We can talk about the latest numbers on -- so that would be more appropriate. So let's say, out of around 15% would be 15-odd would be FT. B2B2C meds, which is sold through both PSU banks, private banks and NBFCs. Correct.
Okay. And the comment you made in context of that product being sort of sub-100% CIS product, right? -- if that 15% of your mix sort of comes under pressure, probably degrows, I mean we don't know how it pans out, but let's say it doesn't grow or degrown the mix percentage of that product comes down over time. it, wouldn't that actually end up impacting your CIS, I thought I east won't impact I was a bit confused.
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 you book as there, which is detailed. So in terms of profitability, it will only improve.
Okay. So just punting on CIS on an overall basis the 99% of CIS by FY '21, which you keep sort of manatees at target I was just curious again, when you mentioned in 1 of your replies that it is a net positive and probably accelerate. So there's a net positive outcome to that 99%. I'm just thinking on first principles, insurance, like loans is a commodity product, right? There's not a lot of difference. So if any incremental gains we get because of those policy changes, which have happened, wouldn't that get completed away in terms of insurers sort of then driving down prices. So I mean, my sense is credit economics of this business model probably a midteen all why should that CIS improvement be structural and then structurally.
The say the ISR improvement is structural Maji.We only said the path to getting there could be accelerated -- Yes, yes. I mean, look, the business, you should now where 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 for all of the -- not necessarily because of competition reasons, but I mean that's just the -- let's say that you should think about it as a utility business. So that doesn't go away. But the -- in terms of FY '29, it could become FY '28 is the point that I made -- and this is also a choice. One is the competitive dynamic and all that, but 98%, 99% CIS, which delivers 15% to 17% -- 18% ROE is where we choose to run this business.
So the way I should think about this is come, let's say, FY '29 or our long-term target -- on a net basis, despite all these regulatory changes, whatever happens in the short term will be around 99% combined and a mid-teen ROE business -- if there's any better comes...
Yes. I mean, there is no change in that quarter core 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 always stay the course. That's the only point. That's the only limited point I'm making.
And last one, 1 question. Just to understand how the commission cuts finally translate into premiums. So I'm using, let's say, customers paying us INR 30,000 premium for the first year when they are just coming and taking a right? And if you're paying 30% commission, you were giving 10% to our agent than that. Right? Now if the commissions or of has dropped from 30% to 20%, right? Why should that 30,000 remain 30,000? Shouldn't it become something like 26,000. I think there was some discussion earlier where you were alluding to even change price, the future price as on -- but I would have thought the initial impact should come upfront itself because the commission which we are not paying now should get adjusted lower for the same sum insured. So that's where I was a bit confused on I mean, actually.
I give the example of how things played out with GST and I open this to Akorn which see, effectively, the 18% reduction in premium on account of GST did not result in a lower price -- lower ticket size. A lot of customers chose to upgrade covers. Either they bought higher sum insurance or at the time of loan they chose to upgrade covers. So effectively, ticket sizes went up.
So the right way to think about it is the customer is a certain budget for health insurance. If there is any saving, it does not change this budget now, we'll continue to spend that down sort of like most customers.
Yes, because the ticket size is an average on the entire portfolio, A lot of customers who are willing to buy at a certain price point, they continue to spend that budget to your mind. And customers were sitting on the fence at the margin, they come in and buy insurance.
And just to take your example, you said 30,000 a ticket size, now commission has dropped from 30% to 20%. The example, you took -- now that 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 basis that we revised premium -- so what we are saying is, it is not that tomorrow 20,000 will become 36,000. What we are seeing 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 is panini -- so 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 division side. We may decide not to increase price for 1 year for any product or for -- only for product.
Thank you, deals.
My question is on the pathway that you've spoken about. So you're saying 35% to 25% seems like it seems easy right now. Now your commission rates are at 21%. Probably they'll come down to 13%. So 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. So if you can help us -- if you can help me understand what all things on the operating expense side can be moved for eventually for you to reach that 20% level? Because still 25, I can understand that the commissions can help you quite significantly. That's my only question.
So in your example, you said 21% is commissioned. It is ballpark there. So 24% is even or other. Other overheads is all in fixed cost. It also includes sales manpower, which is attributed to new business. Now assume this, let's say, INR 10,000 crore GDP becomes INR 2,000 crore. So automatically, the increase in that those expenses will not be to the extent of 2x. That will be much lower. And that's the operating leverage, which will be at play.
Right. So largely, you're expecting the operating leverage play out for you in the noncommission cuts then there's no need for you to trim down any other expenses as it properly cut expenses, that is not a need for you at all?
No, that's not Yes, that's fair. Yes. That's.
Thank you so much on, do you have any questions or that is raised by Ms.
5 No, -- can you Yes. Sir, the question is on the renewals. So basically, if commissions on renewals are reduced as we spoke future understanding on retest effective 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 reduction renewals?
The IT make pass on this benefit because we said that we want to maintain gases, -- so ultimately it will get passed, but it is the timing. For example, let's say, every product will have a cycle. So if we feel that this repricing was due in this quarter, we may decide not to increase price. So what effectively that means is the loss issue will go up to that extent. So for every product we need to see.
Yes, it's only a timing topic. Yes.
Yes. Got it. Sir, sir, in that case, in general, this event is a profitability neutral even 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 -- I mean it is -- I mean SP-28 Definitely in short term. It's not probably positive. Yes. I mean, look, as I said, we believe it will accelerate our journey towards 99% or 98% CSR. So in the short term, it is likely profitability positive. But as Anko also mentioned and I mentioned earlier, our objective is to run this business at between 98% and 99% CSR. And the point is you should have mentioned that the balance benefit, we will pass on to the customer so that we are able to time growth, to drive more sustainable growth, offer great value, et cetera.
Okay. And 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 cloud. Is that fair?
And there will be more demand, and they will be as -- because of the timing differences, some level of immediate flow through into profit.
Shobit, please go ahead.
I have 2, 3 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. So don't -- should we not expect any kind of rationalization in terms of the premiums with the customers will pay. I agree with your argument that towards the GST, we have seen increase in ticket size and all of that. Should we see -- we'll continue to see that kind of wave again in this scenario? And secondly, if I look at the renewal commissions, particularly for the entities like banks or brokers, -- it has been meaningfully ready to very, very low level, which is -- so can we expect any impact on the persistency is because primarily on the banker side, the third-party distribution arm is actually supposed to sell multiple products -- and he might lose his focus on this renewal fees or the renewal commissions on the renewal incentives for that. And sir, lastly, because now 1 of -- so on the heavy churn side, 1 thing is the claims cost and other is the distribution payout cost. It says the distribution cost has largely been addressed by the regulator. Does this segment become much more viable in terms of profitability? And do we expect more multi-line insurers getting into this segment because -- there were some issues with regards to the claims earlier, the commission rates as well. But I think 1 of that has largely been addressed by the idea?
Okay. On renewal, cool, will you take up on regulatory position on premiums...
I will take the real one. I take the renewal. So look, largely for banks and other distributors renewal is largely managed by us -- so even if it's a lower payout going to them, we are the ones who are calling everyone else doing all of the field and the tech and the communication and everything is -- so the strategy level also and the execution level also, we are the ones who are doing renewals for the bank side banks. And we have seen in the institutional side. I'm not talking about the agent side where but they also do a lot of work, et cetera. So we don't see any reason why it should change the renewals, ratios or anything else should change versus that? And in which was the seller in our bank is there today, tomorrow is in some other branch, et cetera, et cetera, it's not the 1 who is regularly in touch with the consumer after a year or 2. It is the insurance company. The first 1 is selling as a representation is done, new business is done by both our employee and client set. But the renewal is generally done by us. And hence, we don't see any reason why there should be any change, so to say, in that market.
Yes. Just a small follow-up, Anuron this. You mentioned about the banking channel or the agency center. What about the digital distribution channel because these channels have been aggressively calling out that we have been helping insurers in improving the persistence in all of that. what will happen to those tenants?
You're right. As I mentioned, bank side, et cetera, we were the ones -- but when you look at others, which is agency, it's the agent for digital distributors pay and we -- both of us do tie. You're 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, renewal perspective. And hence, it is still decent enough. And any which ways, the distributor -- digital distribution, I'm assuming we are -- there's 1 large -- he doesn't have a philosophy of converting 1 to the other to other, and which we support also is not a 1 whereby he gets any commission. So there's not something which he really looks at it. He earns on cross-sell other things, et cetera, et cetera, when the consumer did. So there's no large benefit for him to not to do it because it will still be net positive, positive for them. Obviously, when it compares with what is given today versus what will come tomorrow is very different. But it still doesn't mean that we 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'll make is, look, if you look at our statistics, 85%, 86% of renewals happen digitally. And given Gene, the requirement to actually have even being talked to renew is becoming less and less. I can very easily imagine us that you in a few months from now. where you have a voice bot handling the entire renewal journey for all customers regardless of channel. So I think that, in my mind, is a reasonably solid problem and not something that we should concern ourselves with respect to what is the role of a partner or as frankly, whether it's our sort of partner or everything is going to be done by about in a few months from today, so it really doesn't matter.
I think your first question was the rationalization of commissions. So will there be rationalization of pricing also to bid that plus the question. So in terms of that -- so how it best let me just take you through. So every year, a pounded actually is supposed to look at all the products. Look at all the assumptions and expense assumptions, especially commission is 1 of time product assumption and basis there, target loss ratio is right. 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's say, higher than target loss ratio, you increased no. Now same thing will happen. So let's say, this is effective -- so now last quarter, when we do our annual operating plan. Actually, our team, we look at all the products, see okay, basis all the things, including medical inflation, et cetera, but is going to be the prospective loss ratio. Now expense assumptions undergo change. What that means is the target loss ratio can go up. Now if target loss issue is equivalent to prospective loss ratio, we can decide not to increase price for any product in next financial year which is equaling to rationalization of pricing.
Yes. And to your point on more insurance companies coming in today, look, 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're looking at. With the -- with what we are seeing around expense of management limits, a 5-year requirement to comply to whatever is limited today. And 2 years after that, 25% is a task -- so actually, I would flip the question and ask whoever it is, who is starting a company or wanting to start one. What is the logic to Staton, given this regulatory posture.
In my mind, it is not possible to build a retail health franchise in 7 years' time, while complying to keeping aside commission levels just the requirements in infrastructure build out and think if you said agency is the model that you want to die or even back assurance, the requirements of putting head count on the ground, building brand investing in technology, et cetera. In my experience with 2 companies that have worked with is at least a 10-year journey and it's our daily to get to 35% at the end of that journey. So I would actually flip the question and ask whoever details who wants to start what is their logic to start. Frankly not something arrival about in terms of new entrants.
Okay. Okay. Why I ask this question was because in the last 2, 3 years, you've seen a few of the multiline players becoming aggressive on to the retail health side. Okay. Now we had a call with the digital partner as well later during the day. they had mentioned that they are the other ones who have been consistently adding new life to the industry, which has been -- which is happening is to maintain or maintain their overall loss ratios. Now because they are going to rationale in terms of their advertisement spends and deal launches rational growth rather than what they were doing earlier. Do you expect any kind of loss ratio related impact, which will come in for the industry going forward?
So -- I mean, 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. -- in terms of quality of book and claims ratio, ultimately, it is chart between the company and the distribution partners. 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. Clearly, the quality of the book there is very high. But I will not delete the role that give clad as an operator -- and I'm talking about myself as a company, not necessarily about the industry. But clearly, I think that's something the uniting plan is something that as a moderator being from a Bupa stable, it is something that we also take a lot of time on in terms of our own capabilities, understanding around that.
Just 1 clarification on the EM side, which the regulator has come up these expenses, which would be considered for calculation of this UM, -- would that be the earlier ICAP basis? Or will that be on the IndAS basis? Just a clarification on that. Is there any clarification from the.
See, expense of anime and things to do with ICAP or India because it is at gross level so far. So gross commission, gross expense -- total expenses, no reinsurance and divided by gross direct opinion. So earlier, it was GWP. And in our case, we don't have any incurred insurance, but in some cases, inventory insurance are helping. So it will be -- so that you can think of this as like underwriting basis, whatever business you have done in this year, nothing to do with amortization, et cetera. And I guess, generally, you have reinsurance, so those impact may not be there. So it is different from a, and we are comfortable with this.
I guess there are no more questions in the queue. I guess we'll end the call now. And thanks a lot, again, everyone, for joining us and hearing our views.
Thank you.
Thank you. Appreciate the time.
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