Market Opportunity And HDFC Life's Differentiated Strategy


Market opportunity andHDFC Life’s differentiated strategyMorgan Stanley Conference June 06, 2018 MumbaiAmitabh Chaudhry, MD & CEO, HDFC LifeThis is the sole and exclusive property of HDFC Life. June 6, 2018

The life insurance industry is on a growth trajectory with private playersgaining market share450SensexPrivate 62273292287285227230Individual WRP in Rs SensexIndividual WRP in Rs. Bn30421415,00017214310,000725,000500-Private players’market 5FY16FY17FY1850%57%52%46%37%38%38%49%52%54%56% India’s life insurance Industry saw rapid 25% CAGR in the first 10 years post liberalization of the sector in FY01 Regulatory changes aimed at protecting policyholders’ interests led to a slowdown post FY10 Private players, with recalibrated business models, have gained market share since FY15Source: IRDAI and Life Insurance Council2

The last few years saw several changes to support the changing needs ofthe businessProductRegulations Expense of Management ULIP & Non-Par RegulationsFocus on qualityof the book Emergence of customer friendlyproducts Increasing persistency trendsListing &Governance Initial Public Offerings Merger announcements Investor & analyst focus3Strong growthled by Banca Higher branch penetration &activation Open architecture Increased financial inclusion &movement towards savings’ productsOperationalefficiencies Regulatory interventions Increased investments in technologyand reducing turnaround timesDemonetizationPrivate insurers piggybacked on banks’growth post demonetizationFocus onmargins Protection focus Expense efficiency to improve marginsDigital SalesGrowth of organic online platforms andentry of aggregatorsEmergence ofstart upsFinTech companies – Alternate sourcesof customer dataEntry into ecosystems

White spaces, however, continue to exist Lack of value proposition Non-focus areas for insurersUnmet financialneedsUnder-servedcustomer segmentsSub-optimaloperating model Latent needs that are not served Limitations of current distribution Customers beyond the ambit oftraditional insurance Complex fulfilment processes4

Opportunity to penetrate under-served customer segmentsIndia life insurance penetration(FY08-17)Per capita income ( )Share of life insurance in householdsavings ugglers ( 2300)Gross financial savings ofthe household sector (%of GNDI)46%45%% of life insurance ingross financial savingsAspirers (7700 - 15400)42% India has a lower penetration oflife insurance (2.7% of GDP)representing a huge opportunity yetto be unlocked by the industryThis compares poorly with otherAsian countries (Thailand - 3.7%),South Korea (7.5%), Taiwan(16.7%)Source: IRDA annual report FY 16-17, IBEF5Growth in household savings andincreasing preference towardsfinancial savings presentsopportunity to increase share oflife insurance within 6FY15FY13 FY1415%FY17FY16FY15FY14FY13FY12FY11FY10FY09FY0820% Next billion (2300 - 7700)Affluent (15400 - 30800)Elite ( 30800)Number of households (M) Rising per capita income will seehigher share of “Affluent” and“Aspirers” by 2025 This presents an opportunity toserve customer segments such asmicro-markets in Tier1/2 citiesand rural markets since only 8 10 % of rural households have somelife insurance coverage

Huge gap in fulfillment of certain financial needsProtection gap (2014)100 92.2% 88.3%Female Population90-9478.4%Life expectancy at birth(# of years)India population (2025E)Male Population75.980-8473.3% 72.5% 70.2%70-7456.3% 56.0%71.760-6450-5440-4430-3416.4%65.520-24 India has the highestprotection gap in the region, asgrowth in savings and lifeinsurance coverage has laggedbehind economic and wagegrowthProtection gap has increasedover 4x in last 15 years withsignificantly low insurancepenetration and density0-4204060Mn India will continue to be a youngcountry, with 50% of thepopulation below the age of 30,hence the need for long-termsavings will continue to dominate This young demographic profilewith dependents needsappropriate savings to take careof long term needs2010Age Demand for retirement policies willrise with increasing lifeexpectancy; proportion of India’selderly population ( 65 yrs of age)will increase by 50% to 120 Mn by2030 Emergence of nuclear families andlimited social securityinstruments will facilitate need forpension based productsSource: Swiss Re (Based on respective financial year of the countries), MOSPI; United Nations World Populations Prospects Report (2015); U. S. Census Bureau, International data base6205002030TaiwanSingaporeJapanHong KongMalaysiaIndonesiaThailandChinaIndia10-14

Sub-optimal operating models fail to leverage potential opportunitiesChanging landscape presentinga world of opportunitiesIn India’s internet economy, customer is truly digitalTraditional operating modelsthat need to evolveExcessive reliance on feet-on-street and branchesPartners straddling 'High Touch' and 'High Tech' modelsArchaic distribution - low productivity & high attritionRegulations leveling the playing field for disruptorsLife insurance remains a vertically integrated industryEmergence of aggregation platforms for millennialsComplex and lengthy processes leading to high TATsData and technology availability7Touch points give an inconsistent customer experience

Opportune time to seize the initiativeStable and progressive regulatory environment Guidance related to management expenses, product structures, distributor commissions in place E-commerce and web aggregator regulations have set the stage for the next phase of growthInsurers well-positioned to address white spaces Insurers have reached a size and scale that allows them to take the next leap Experience with multiple business cycles, listing has enabled insurers to recalibrate their business modelsCutting-edge technology at our disposal Cloud solutions, RPA allowing cost-efficient operating models Better customer and distributor engagement with analytics, big data and AIIncreasingly digital and more aware Indian consumer Consumers leaving digital footprints - 1.19 Bn Aadhaar enrolments, 810 Bn annual page views, 350 Bnannual search queries Government initiatives like PMJJBY have raised awareness about insurance needs8

At HDFC Life, we are driving multiple levers to address white distributionRevitalization ofthe coreOffer attractive valuepropositions tocustomers to cater toboth innate and latentneedsRedefine the salesprocess to reach a widercustomer base anddeliver a superiorexperienceUtilize cutting-edgetechnology to makedata and processesmore relevant for today2319

Product innovation is aimed at meeting the objectives of contemporarylife insuranceCritical objectives to be met1Improve customervalue proposition3Increase lifeinsurancepenetration5Competitiveofferings comparedwith other assetsProductinnovation101Customercentric dist2Protect policyholderinterest4Enhance customersatisfaction throughproduct suitability6Nurture nontraditional channelsof distributionRevitalization of core23

A differentiated product suite caters to innate and latent customer needsCredit Protect: Protectionagainst loan worries withminimum documentation1Loanprotection5Click2Invest: One ofthe first minimalcharge structure ULIPsClick2Protect Health:Life and indemnity-basedhealth cover under asingle planLow-costprotection6Productinnovation @HDFC LifeLow-cost ULIPsComprehensivehealth plansCardiac Care:Protection against18 cardiac diseasesCancer Care: Lumpsum benefit andwaiver of premium24GuaranteedpensionPartnership withnon-life ion productseries - Click2Protect1Customercentric distPension Guaranteed Plan:Guarantees on annuitydeferred up to 10 yearsRevitalization of core23

Deeper integration with existing partners enables us to improve thecustomer experience123Front End SalesEnablementIntegrated Technologyand Processes Lead managementengines Netbanking, 3 click buy,ATM, mobileapplications Well defined anddocumented salesmanagementprocess Faster processingthrough STP, e-KYCintegration Customized NB andrenewal opmentQualityManagement Joint productdevelopment Video enabledverification Broad portfolio coveringrange of customer lifecycles, segments Suitability matrix Owning unique customersegmentsCustomercentric distRevitalization of core23 Well defined andmonitored SLAs Structured trainingprograms

Our new partners will help us widen our customer baseSmall Finance banks &NBFCs Nine out of ten small financebanks have life insurance tieups with HDFC LifeWith more than 2,600 branches,the small finance banks are wellspread across the country withminimal geographical overlapand help us reach asupplementary customer baseNBFC tie-ups (97 partners)help us cater to micro-marketsin tier-1 and tier-2 cities#: Credit Suisse report on digital payments in India, 201813Rural innovators Payment appsComprise rural e-commercecompanies, last mileconnectors, affordable housingand education loan providersGet access to varied needs ofnew customer segments atcritical junctures in theirjourneys – e.g. protectionproduct to safeguard stability athome to avoid child drop outs Improve last-mile connectivityfor better sales and serviceProductinnovation1Customercentric distRevitalization of core23Combined reach of more than90 million unique customersKey partners as digitalpayments are estimated toincrease 5x in the next 5 years#Allows us to reach customers inan active financial engagementEfforts in progress to utilize thepayment journey for africtionless insurance-buyingexperience

The sales process is also being re-imaginedFrom the traditional value-chain distribution model at present.BranchPartner a customer-centric onePayment avenues Wallet UPI/BHIMDigital channels Portal , mobile apps Social mediaCustomerEcosystem partners Aggregators E-CommerceProductinnovation141Customercentric distData analytics Aadhaar CIBIL scoresRevitalization of core23

Networks will be relevant across the value chainServicingMarketingand consumerinsightsPaymentsPhysicalaccessCustomer dataSales platformNote: Brands depicted are illustrative to explain the conceptProductinnovation151Customercentric distRevitalization of core23Risks andclaimsmanagement

Powerful digital tools are simplifying customer service99% claimssettlementCustomer service is going digitalNew My Account One stop self servesolution for information,transactions and requestsEmail Bot – SPOK Automated &instantaneous responsesInsta-suite mobility apps On-the-go transactionsand policy managementTwitter Bot - NEO On-the-go responses tosimple queriesEffortless Payment options Payment apps Netbanking eSI and eNACHChat Bot - Elle 24*7 service Easy access to omercentric distRevitalization of core2314%reductionin customercomplaints44,000 queries processedthrough mobileapp3 daysaverage claimsettlement TAT

Unified data and smarter processes to support the digital front endBetter lead allocation fornew business andrenewalsSeamless integrationthrough SDKs and APIsAnalytics-powereddecision making at criticalstages – u/w, claimsCustomer 360 view –consistent omni-channelexperienceLeveraging robotics: 88processes automatedUnifieddataSmarterprocessesCollaboration with UIDAIfor ease of documentationArtificial intelligence incritical processes in thevalue chainCloud-based solutions forfaster, secure data accessProductinnovation171Customercentric distRevitalization of core23

In summary, HDFC Life’s differentiators to address industry-wide whitespacesUnmet financialneedsProduct innovationOffer attractive valuepropositions tocustomers to cater toboth innate and latentneedsUnder-servedcustomer segmentsSub-optimaloperating modelCustomer-centricdistributionRevitalization ofthe coreRedefine the salesprocess to reach a widercustomer base anddeliver a superiorexperienceUtilize cutting-edgetechnology to makedata and processesmore relevant for todayStrong financial performance across business cycles: Consistent focus on profitable growthComprehensive risk management frameworkIndependent and experienced leadership team and reputed board18


The life insurance industry is on a growth trajectory with private players gaining market share Source: IRDAI and Life Insurance Council 34% 35% 50% 57% 52% 46% 37% 38% 38% 49% 52% 54% 56% Private players' market share n