Managing Director & Chief Executive Officer
Director & Chief Marketing Officer
Amitabh Lal Das
Director & Head, Legal Compliance & Regulatory Affairs
Director & Appointed Actuary
Senior Director & Chief Operations Officer
Director & Chief Investment Officer
Director & Chief People Officer
Deputy Managing Director
Max Life bags “Sectoral Winner” in the BFSI category by ASQ SATEA 2018 for the project ‘Enhancing S2R conversion percentage in select 60 offices in the Agency channel’
Macroeconomic Review: Consumer Optimism Fuelling Growth
In a year that was the run-up to the 17th general election in the world’s largest democracy, the Indian economy grew at ~7% according to the latest Reserve Bank of India (RBI) estimates, a five-year-low growth rate. Despite this, India retained its position as one of the world’s fastest growing major economies. The RBI reduced the repo rate by 25 bps to 6% towards the end of FY2019. Aided by steady consumer optimism, the Sensex rose 17.3% in FY 2018-19 - its biggest gain in the last four years. Inflation was kept in check through the fiscal, with consumer spending at a high on the back of digitisation, globalisation, favourable demographics and reforms.
The World Bank estimates that Indian GDP growth rate would accelerate to about 7.5% in the coming fiscal on the back of resilient consumption and continued investment spending. Despite a spike in international crude oil prices, strengthening of the Dollar and the US-China trade war, India held its ground with recent International Monetary Fund (IMF) data suggesting that India is the fastest growing large economy, and this is expected to continue over the next few years as well.
All in all, on the back of consumer optimism, steady investments and the optimism of a newly re-elected government, the foundation has been set for a positive growth trajectory in the financial services sector, specifically the life insurance sector.
Industry Developments – Leveraging the Financialisation of Household Savings
On the back of two years of consistent 20%+ growth of the life insurance industry in India, FY2019 saw a comparative growth slowdown. The top-line growth, in terms of Adjusted Individual First Year Premium, was at 9% for the Indian life insurance industry in FY2019, with private life insurance companies recording a 12% growth and holding 58% market share. The industry has the potential to grow at a steady pace of 12-15% over the next 2-3 years. This is due to strong and continued customer confidence in financial savings and investments, a steadily increasing awareness of life insurance and its importance in financial planning, and a healthy demand for protection and long-term savings products. Added to this, the evolving socio-economic structures in the country, such as nuclearisation of families, concentration of wealth and jobs in urban centres, and millennial lifestyles and spending preferences are all giving the industry the required thrust towards sustained growth. However, there remains a need to continue working on creating awareness about the true benefits of life insurance. Despite this growth, life insurance penetration is still at a low 2.76% and there exists an estimated protection gap of around ` 480 lakh crore, as per the IRDAI Annual Report 2018.
The trends witnessed over the last few fiscals in the life insurance industry, on parameters such as persistency ratios, claims settlement ratios, ability to provide steady returns to customers, a focus on increasing the overall quotient of financial protection in the country and corporate governance and transparency, have not only been positive but promising of future growth of the industry.
Max Life Insurance: Strategy to Consistently Deliver Profitable Growth
Over the last nearly two decades, Max Life Insurance has created a strong business architecture to consistently deliver profitable growth while securing the financial future of its customers.
It is the Company’s aim to deliver a 25-25-25 vision by FY2022. This means that the Company has the ambition to deliver growth of 25% in Value of New Business, 25% New Business Margin and 25% Return on Embedded Value.
During FY2018, the management team of Max Life undertook an in-depth exercise to identify its strategic priorities for FY2019-21. These six strategic priorities have been identified keeping in view the socio-economic changes India has witnessed, insights from key stakeholders, including customers, and the strengths of Max Life Insurance:
1. Expanding Reach of Proprietary Channels to Fuel Further Growth
Max Life has always believed in having a balanced multi-channel distribution architecture, with the proprietary channels at the core. After almost a decade of working towards building a more efficient agency distribution, achieving leadership in online term plan and scaling up the Customer Advisory Team (CAT) channel, Max Life decided to expand its agency distribution by opening over 150 new office units by mid-FY2020. This will help increase the share of proprietary channels in the Company’s distribution mix. At the same time, Max Life will continue to strengthen its existing relationships with valued bancassurance partners- Axis Bank, Yes Bank, Lakshmi Vilas Bank and multiple urban co-operative banks. Group business, with its focus on Group Credit Life and Group Term Plan, will continue to contribute to protection push of the Company.
2. Knowledge Partnership with New York Life
Max Life entered into a knowledge partnership with former executives of New York Life to share insights and best practices to help Max Life drive efficiency in agency distribution. Former executives of New York Life will lend their expertise gained from successfully working in the world’s largest insurance market on smart recruitment strategies, agent/office productivity enhancements, improvement in agent advisor management, sharper target segmentation, specialised techniques towards enhanced performance and leadership training development in order to drive scale, throughput, profitability and quality. These individuals will also help Max Life drive leadership development (office heads, regional managers and Zonal Vice Presidents) to groom and retain the best-in-class talent and support the expansion of the business.
This consultancy team will work alongside Max Life management and create a co-branded knowledge and leadership programme that will help drive efficiency and productivity in the Max Life agency distribution channel. The programme will be jointly developed by Max Life and the consultancy team to provide global best practices through online and offline manuals.
Max Life also announced a separate agreement with New York Life for New York Life to provide certain offshore support services to its former executives and to assist Max Life in the promotion of the knowledge partnership.
3. Enhancing Customer Experience for Continuous Growth
Max Life has always been among the leading players in customer centricity. In an independent survey by Kantar IMRB, Max Life emerged as the leading company on customer loyalty with a loyalty score of 77%. The Company plans to further enhance its customer focus and gain undisputed leadership on key customer parameters over the years to come.
Prompt settlement of death claims is the most important promise a life insurer makes at the time of selling a life insurance policy. With the launch of InstaClaimTM for vintage policyholders (i.e., policies that have been in force for at least 3 continuous years), Max Life’s endeavour is to provide death claim payment within 1 day. Currently, ~ 55 % of claims are settled within a day.
Max Life plans to expand its agency distribution by opening over 150 new office units by mid-FY2020. This will help increase the share of proprietary channels in the Company’s distribution mix. The Company will also continue to strengthen its existing relationships with valued bancassurance partners.
Max Life wins top position in the ‘New Product Development & Customer’ category of the CII Six Sigma Awards
With investments in fraud management and usage of robust analytical models, the Company became an industry leader in Claims Paid Ratio with 98.26% in FY2018 (as per IRDAI Annual Report 2018) and further improved its Claims Paid Ratio in FY2019 by 48 bps to 98.74%. Max Life paid 14,897 death claims worth ` 452 crore during FY2019. Since inception, Max Life has paid ` 2,668 crore death claims to 97,369 families.
Ongoing improvements in structural solutions and services to improve persistency is one of the key focus areas of Max Life. During the year, 13th month persistency of the Company went up to 83% and 61st month persistency stood at 53%.
From FY2019, Max Life started tracking performance on customer engagement and satisfaction through Net Promoter Score (NPS), which reflects the difference between promoters and detractors of the Company. By doing so, the Company aims to get greater insights in what delights or detracts customers to buy and recommend its policies and further implement corrective actions to ensure that the Company meet customers’ expectations. During FY2019, NPS scores improved by 8%.
4. Leveraging Cross-sell Opportunities for Future Growth
LIMRA (formerly Life Insurance and Market Research Association) studies have indicated that on an average, a consumer buys 6-7 unique policies during his/her lifetime. Max Life has jumped from the 6th position last year to be the leader among 13 leading life insurance companies, including LIC, in the Kantar IMRB survey mentioned earlier. With this, the Company has an opportunity to get greater share of wallet when its policyholders plan to buy new policies. Keeping these factors in mind, Max Life has decided to make efforts to sell more policies to its existing base of over 34 lakh policyholders. This will not only help accelerate growth in the top line, but will also enhance policyholders’ loyalty with the Company and hence, improve persistency.
5. Protection Focus
With a protection gap of ` 480 lakh crore as per IRDAI, India is grossly under-protected. The true differentiator for life insurance is its ability to offer protection against the risk of unforeseen eventualities of life and help loved ones achieve their life goals Pure protection policies are the most cost-effective way for life coverage for a customer. Over the years, Max Life has been committed to increasing the financial protection of Indian households. It is already one of the leading players in the individual protection space and plans to further strengthen its position through enhanced focus in this area.
In FY2019, to further this commitment and to showcase the level of under-preparedness to face financial instability in case of death of a breadwinner, Max Life embarked on a one-of-of-its-kind urban survey called the Max Life Insurance India Protection Quotient in association with Kantar IMRB. The survey was conducted across 15 metros and Tier 1 cities in India covering over 4,500 respondents. The survey determined policyholders’ level of protection by evaluating their life insurance ownership, awareness levels and mental preparedness around protection.
It measured the level of knowledge and ownership of various life insurance products, degree of term insurance preference and penetration, primary fears and triggers to life insurance purchase, preferred channel of policy purchase and roadblocks to owning life insurance. The survey pegged the overall IPQ level at a poor 35 out of 100, confirming the fear that India feels inadequately prepared to face the eventuality of loss of life, disability and critical illness.
Key Findings of Max Life Insurance India Protection Quotient
India is on a digital superhighway. Indians are spending their time online - on social networking sites, chatting, streaming videos, listening to music and engaging with each other through the virtual world now more than ever before. With the economy moving to digital transactions and payments, customers can shop, bank, pay bills and transfer money at the click of a smartphone. As industry leaders in the term plan space, Max Life has not only been a leading player in e-commerce, but today welcomes one in every 4 customers through the digital door. The Company has created digital enablers across the customer life cycle to create seamless, frictionless journeys. Leveraging the digital revolution, Max Life has launched certain applications to extend its services to customers:
• Help me faster
Max Life has launched smart digital tools to enable agent advisors to reduce time to application, reduce error rates, solve customer queries on-the-go and trigger reminders for premium payments, among other things. The Company’s online portals offer self-servicing options with chatbot assistance to enable customers to check details of their policy, or to make changes or updates such as address change, etc. This not only tremendously increases convenience for the customers with 24X7 service availability, but also increases accuracy of inputs as it’s being done by the customer themselves.
• Know me better
With the help of data-driven analytics, Max Life is able to offer products and services through the various life stages of a customer, customising them to meet various life goals such as protection, wealth creation, child’s education or retirement. Data-driven insights not only help sellers and agent advisors pitch an appropriate solution to a prospective customer, but also assist in selling better.
• Wow me everywhere
Today, brands need to consider how their experiences across media, channels and devices fit together to provide a holistic experience for the customer. Max Life has built an omni-channel approach to digitisation into its growth strategy for the long term.
During FY2019, many initiatives were taken to move towards being a truly digital organisation and deliver many industry-first digital processes. Some of them are explained below:
A newspaper advertisement highlighting Max Life achieving the highest Claims Paid Ratio in the industry of 98.26%
7. People: The Foundation and Support for Consistent Growth
Inspiring leadership, improving employee experience and contemporising people practices are key drivers of Max Life’s high-performance culture. Throughout the year, initiatives on supporting performance, celebration of personal and professional milestones, and volunteering for social impact were planned at the local and organisational level. The Company continues to seek feedback from employees through its annual employee engagement survey (in partnership with one of the largest global survey companies), and leverage internal employee lifecycle surveys during on-boarding and external assessment of people practices and employee experience by participating in the annual Great Place to Work study.
Max Life ranked 43rd in the 2018 study conducted by the Great Place to Work, India and The Economic Times. In its 2019 edition, the Great Place to Work Institute, India, recognised Max Life among the Top 20 workplaces in the Banking, Financial Services and Insurance (BFSI) category; the overall ranks are still awaited.
Max Life becomes the official life insurance partner for the Royal Challengers Bangalore in IPL 2019, driving the message of “Protection Front Foot Pe”
In the 2019 annual employee engagement survey, Max Life scores are reported to be ahead of all industry or global benchmarks.
Max Life employees are now on the Workplace by Facebook platform. The Company is witnessing significant traction in terms of real-time updates, leadership communication and interaction among employee communities.
Pehal, the Company’s employee volunteering programme, continued its momentum where over 4,250 employees and agent advisors across geographies participated in social causes such as financial literacy, sapling plantation, healthcare, blood donation, immunisation and health camps, as well as collection and distribution of goods for the underprivileged section of the society.
At our Founders’ Day, a record 464 employees were recognised with long service awards for completing 10 and 15 years of service with Max Life. Over the last year, Max Life’s attrition for top talent came down from 12.7% to 11%.
The Max Life Brand: Re-energised to Support Exponential Growth
Customer obsession has been the key pillar of Max Life’s brand strategy over the years. The refreshed and re-energised view of the Max Life brand has been crafted around this obsession. The platform ‘You are the Difference’ has been conceptualised with a sharp focus on the role of the customer and the key need of protection.
The brand positioning of ‘You are the Difference’ was introduced with the Claims Paid Ratio leadership campaign – integrated with a radio channel media partnership to deliver the impact of ‘khushi’ for the customer.
Extending this customer obsession, Max Life launched a category leadership narrative around protection with the ‘India Protection Quotient’. For this initiative, the Company had an exclusive media partnership with the leading news network, NDTV, leveraging the research insights across cohorts, building conversations with industry experts and Max Life leaders. Online and social presence (with influencer outreach) further strengthened this programme. The campaign also helped open more doors for the Company;s offline sellers with focused conversations around protection-led term plans.
Health and wellness is a leading conversation for Max Life’s customers and the Company leveraged the same by delivering an ecosystem of ‘Community Run’. The core idea was to make ‘You are the Difference’ the heart of ‘mindful living’. ‘Be Healthy, Be Protected, Be Happy’ was the theme of the community run called ‘The Run’, which took place in Gurugram and Bengaluru.
Max Life rounded up the year with its partnership with the Royal Challengers Bangalore (RCB) IPL team. This execution further strengthened the protection imagery for the brand Max Life as the Company was the insurance partner of Team RCB. The campaign focused on Top 8 markets under the umbrella ‘Protection Front Foot Pe’.
Max Life’s ‘Super Customer Week’ aims to educate customers through innovative activities at branches across the country each month
While the Company leveraged its marketing efforts with the above campaigns around ‘You are the Difference’, customer experience was enhanced with the launch of the ‘Super Customer Week’ programme. Engagement with existing customers was the core theme of this programme and the Company leveraged its field presence with 205+ field offices to deliver impact. Every month, a week is celebrated as ’Super Customer Week’ with focus on service camps, health camps and tax camps. Max Life won the silver medal at the ACEF Global Customer Engagement Awards under the ‘BTL Activities Effectiveness’ category.
Max Life also made the policy pack delightful for its customers with the introduction of ‘Concise Policy Pack’, which was delivered based on our extensive work on making the language of the policy pack simpler and customer focused.
Max Life’s monthly ‘Super Customer Week’ was focused on educating customers about the need for protection and the benefits of various life insurance plans and tax savings through life insurance.
Insurance Awareness: Responsibility as a Leading Player
Max Life believes that it is important for Indian consumers to be aware of the true purpose of life insurance. Various surveys by leading research agencies have indicated that while a large number of Indians are aware of life insurance plans, ownership of term insurance is low and consumers are not aware of the role life insurance can play in building a financially secure nation. As a responsible life insurance company, Max Life continued to work towards increasing awareness about life insurance and financial concepts among its existing and prospective life insurance customers. Max Life worked on four specific themes:
• Campaign on the benefits of life insurance
Max Life has engaged with people at large through its own social media assets to educate them about the importance of life insurance as a financial solution for protection and for meeting life stage needs. The Company reached out to 1.48 crore people. In addition, 100 articles related to life insurance were posted on leading portals. It also utilised the reach of print, television and digital media through participation in life insurance-related stories and authored articles. During the year, the Company launched the monthly ‘Super Customer Week’ to connect with average 1.73 lakh customers who walk into its branches across the country. During this week, multiple activities were carried out across our branches through which customers were educated about the need for protection, and benefits of various life insurance plans and tax savings through life insurance. In addition, articles on how to get the best out of life insurance plans were sent through email to existing customers.
Highlights for the year ended March 31, 2019 are as under:
*Adjusted First-year Premium = Individual Regular First-year Premium plus 10% of Single Premium
• Campaign focusing on protection of consumers
Fraudulent activities and spurious calling to defraud life insurance consumers is a reality that the life insurance industry is addressing through individual and joint efforts. During the year, a video was created on how to protect oneself from such activities and was shared with the Company’s existing policyholders and posters were displayed in own and partner branches. Leaflets with information on how to protect oneself from fraudulent activities were also sent to new policyholders as part of the policy pack.
• Campaign for children and youth
Max Life continued its engagement with school children to provide financial literacy and insurance awareness during the formative years. Max Life’s employees educated 3,924 students at 52 schools about basic concepts such as money, savings, investment, etc. and also provided information on various financial instruments and government insurance schemes.
• Campaign for the underprivileged and rural population
Max Life, in association with Max India Foundation, adopted the Dhakrani village in Uttarakhand in 2015. The Company’s employees and agent advisors have been carrying out door-to-door financial literacy campaigns in the village. In FY2019 as well, employees and agent advisors reached out to 850 households.
Max Life also led the industry initiative on insurance awareness launched under the aegis of the Life Insurance Council. Max Life’s MD & CEO holds the position of Chairman of Insurance Awareness Committee formed by the Council. During the year, all life insurance companies, including LIC, were brought together on this common platform and an agreement was reached to create a common corpus for insurance awareness campaigns. Significant progress was made in selecting the right agency partners for creative, PR, digital and media buying.
Key Performance Indicators
In FY2019, Max Life gained 70 bps in market share achieving 9.7% among the private players and maintained its 4th rank. At an industry level, including LIC, Max Life had a 5.6% market share, a gain of 50 bps.
During the year, First Year Premium (Individual + Group) for Max Life increased by 19% to ` 5,160 crore. In terms of individual adjusted first-year premium, the Company recorded a 21% growth to ` 3,880 crore.
Renewal premium income grew by 15% to ` 9,415 crore, taking Gross Written Premium (GWP) to ` 14,575 crore, an increase of 17% over the previous financial year.
The operating expenses (of policyholders) to net premium ratio marginally increased from 13% in FY2018 to 13.2% in FY2019, primarily on account of investment in future growth of the proprietary channel and the minor increase in the cost (commission plus policyholders’ operating expenses) to net premium ratio from 20.22% in FY2018 to 20.23% in FY2019. Max Life generated a post-tax shareholders profit of ` 556 crore in FY2019 as compared to ` 528 crore in the previous financial year, recording an increase of 5%. The Company announced shareholders’ interim dividend (net of Dividend Distribution Tax) of ` 234.10 crore and the Board recommended a final dividend (net of Dividend Distribution Tax) of `163.1 crore during the year, which takes the total dividend distribution to 21% of the face value of each share.
Pillars of Growth – Business Area Performance
Max Life is happy to report a strong performance across various operational areas.
Strong Multi-channel Distribution Architecture
Distribution is the core strength of any organisation in a country as large and diverse as India. In life insurance especially, this is apparent in the varied ways in which consumers prefer to engage with an insurer, through an agent advisor, banker or directly online through a self-serve platform. Max Life has always believed that for consistent growth, the Company must nurture its multi-channel distribution architecture with its proprietary channels at the core. Over the years, the Company has created an admired agency distribution channel, stable and high-performing third-party distribution relationships, leading e-commerce channel as well as the ability to explore new distribution formats.
Max Life entered into a knowledge partnership with former executives of New York Life to help achieve efficiency in agency distribution. This team will create a co-branded knowledge and leadership programme to drive efficiency and productivity in agency distribution.
Proprietary Distribution Channels
Through the fiscal, the proprietary channels recorded a growth of 29% and thus, increased their share in Adjusted Individual First-year Premium from 26% in FY2018 to 27% in FY2019. The agency distribution, customer advisory team and e-commerce witnessed strong growth momentum through the year, as well as improved performance in terms of the quality of business. At the same time, the Company has been a leader in new distribution models such as insurance marketing firm, agency partner channel, defence channel, etc.
Here’s a summary of each of the distribution models of Max Life:
Over the last 10 years, the focus has been on improving the efficiency and productivity of agency distribution. In FY2019, the Company has taken significant steps to bring alive its strategic imperative of increasing the share of proprietary channel to 40% over the next few years and hence, has decided to increase the distribution footprint of agency distribution and opened 119 new office units. Going forward, the focus will be on retention and success of Agency Development Managers (ADM) and agent advisors by building a strong coaching and learning culture with a growth and entrepreneurial mindset.
Within agency distribution, Max Life carved out the Agency Partners Channel, which is driven by a variable agency model and which leverages recruitment through a higher variable construct. This channel had more than 700 leaders and 2,000+ agent advisors. This model showned promise in its first full year of functioning.
Army personnel remain at the forefront to protect the country. To bring additional focus to this segment of the society, Max Life created a new team within agency distribution to provide relevant life insurance solutions to them. These new initiatives provided further impetus to the growth momentum of agency distribution and contributed more than 5% of the new business of the channel.
During FY2019, Max Life entered into a knowledge partnership with former executives of New York Life with the objective of sharing insights and best practices to help Max Life’s efficiency in agency distribution. The team comprises three recently retired, highly experienced stalwarts who were the leading agency business officers for New York Life. This consultancy team will work alongside Max Life’s management and will also create a co-branded knowledge and leadership programme that will help drive efficiency and productivity in Max Life’s agency distribution channel. The programme will be jointly developed by Max Life and the consultancy team to provide global best practices through online and offline manuals.
The India Protection Quotient survey conducted by Max Life in association with IMRB paves the way for increasing the nation’s financial protection
• Customer Advisory Team
At Max Life, no customer is orphan as the Company has created a Customer Advisory Team (CAT) to meet the needs of customers whose agent advisors are no longer part of the Max Life system. The service-to-sales model for this direct-to-customers channel worked well during FY2019, including an expansion of its team to record high growth. This channel doubled its sales in just two years and leads the 13th month persistency across the Company’s multiple channels.
• Online channel
For new-generation consumers, online is the go-to channel for almost all their needs. Max Life continued to be among the leaders in online term plans, recording a strong growth on an ever-increasing base. Almost 15% of Max Life customers came through the online channel.
Max Life Online Term Plan became the most considered brand when it comes to buying term plans online. Through its search engine optimisation expertise, Max Life achieved leadership in Brand+Term search across life insurers. The Company also continued to be the leading life insurer across web aggregators and digital brokers.
• New channels
Max Life has been leading the industry in adopting new distribution designs. During the year, the Company expanded the IMF channel by adding 40 more IMF partners. The license of few of the IMFs also came up for renewal. Max Life also expanded the number of Insurance Managers, a channel that provides the flexibility to work part-time to those who have an entrepreneurial drive.
• Axis Bank
The relationship between Max Life and Axis Bank, which has the vision to be the most admired bancassurance relationship, is one of the fastest growing bancassurance relationships in the Indian life insurance industry, with both partners committed to providing superior value to their customers. Max Life continued to dominate the life insurance counter in the banks in both individual and group business, despite an open architecture setup.
• Yes Bank
The bancassurance relationship between Yes Bank and Max Life continued to gain scale with strong growth performance during the year. With the new leadership team at Yes Bank, Max Life plans to take this relationship to the next level.
• Other bancassurance relationships
With the introduction of open architecture, Max Life’s relationship with Lakshmi Vilas Bank witnessed some decline in new business, but a turnaround is expected in the coming years. The Company’s partnerships with Urban Co-operative Banks (UCB) recorded performance in line with the plans.
Group business registered growth of 19% in FY2019 to achieve ` 468 crore of new business. Group business added 351 new clients in Group Term Life and 23 new clients in Group Credit Life. In addition, the business added 13 new affinity partners.
A Balanced Product Mix: Delivering on Growth
Max Life has always believed that a well-balanced product mix is key to serving the needs and financial goals of varied customers, while delivering consistently on profitable growth. The Company maintains a balanced product portfolio with an optimal mix of traditional savings-cum-protection plans, unit-linked plans and pure protection.
During FY2019, it added new products to its portfolio, both in the group and individual space. For group business, Max Life launched the Group Term Life Platinum Assurance plan, a group term insurance plan covering all employer-employee and non-employer-employee groups. For individual business, the Company launched the Savings Advantage Plan, a feature-rich traditional participating endowment product, offering guaranteed and non-guaranteed benefits, flexibility in premium payment and policy terms, among others.
Protection continued to be a key focus area and in FY2019, one in four individual policies underwritten by Max Life was a protection policy. Of the new business premium, including individual and group business, protection share increased from 7.7% in FY2018 to 9.9% in FY2019. This also resulted in a 38% increase in Sum Assured of in-force policies to `7,03,972 crore.
Max Life emerged as a leader in online term plans, with almost 15% of its customers signing up online. Max Life Online Term Plan became the most considered brand when it comes to buying term plans digitally. The Company is also the leading life insurer across web aggregators and digital brokers.
The operating expenses (policyholders) to net premium ratio of Max Life marginally increased from 13% in FY2018 to 13.2% in FY2019 primarily on account of investment in future growth of the proprietary channel. The cost (commission plus policyholders’ operating expenses) to net premium ratio remained stable at 20.2% in FY2019 (marginal increase of 1 bps).
As per the design of its participating products, the Company annually reviews the performance of its in-force business to determine the non-guaranteed bonuses payable to its existing participating policies.
The recommendations for the participating policyholder bonuses applicable during the period from July 1, 2019 to June 30, 2020 are being made using the asset share framework, taking into account the experience of the fund during the year as well the expected performance of the fund in the future. The methodology and assumptions used to calculate such bonuses are consistent with the established principles and practices documented in the Principles and Practices of Financial management (PPFM).
On the advice and recommendation of the Company’s appointed actuary, the Board of Directors approved to:
The total cost of regular bonus payable for the next 12 months starting June 2019 is estimated to be ` 1,222 crore, an increase of ` 169 crore from the bonus distributed last year amounting to ` 1,084 crore. In addition, the payment of terminal bonus on eligible deaths and maturities has been approved, the cost of which is estimated to be about ` 20 crore.
A Robust Risk Management Framework to Address Enterprise-wide Risks
The Company’s overall approach to managing risks is based on the ‘three lines of defence’ model with a clear segregation of roles and responsibilities for all the lines. Business managers are part of the first line of defence and have the responsibility to evaluate the risk environment and put in place appropriate controls to mitigate such risks or avoid them. The Risk Management Function, along with the Compliance Function, forms the second line of defence. The Internal Audit Function guided by the Audit Committee is the third line of defence and provides an independent assurance to the Board. The Statutory Auditors and regulatory oversight aided by the Appointed Actuary in his/her fiduciary capacity is also construed to provide an additional third line of defence.
Risk management activities are supervised on behalf of the Board by the Risk, Ethics and Asset Liability Management Committee (REALM), whose responsibilities conform to those prescribed by the Insurance Regulatory and Development Authority (IRDAI). The Management Risk Committee, chaired by the MD & CEO and supported by the Operational Risk Group and Asset Liability Management Group, Information Security & Business Continuity Management Committee and the Outsourcing Committee, assists the Board Committee in overseeing risk management activities across the Company.
Max Life has an independent Risk Management Function in place, headed by a Chief Risk Officer. The Function is responsible for the supervision of all risk management activities in the Company, including developing the risk appetite, maintaining an aggregated risk view across the Company and monitoring the residual risks to ensure that they remain within tolerance levels. It also reviews the appropriateness and adequacy of the risk management strategy and provides recommendations to the REALM Committee as necessary. The Risk Management Function also ensures that through various management submissions, the Board is adequately informed about key emerging risk-related issues and, if necessary, provides supplementary advice to the Board through the REALM Committee.
A Risk Management Policy sets the broad contours of the management system, which is used to identify, assess, monitor, review, control and report risks and controls within the Company. It is also the Company’s policy that risks should be managed systematically with the process of risk management being well defined and with its various elements properly integrated. The implementation of the risk management system is a continuous cycle of improvement over the Company’s existing risk management elements. Max Life continues to progress well on its vision of a matured state of risk culture where every individual takes responsibility of risks and has a thorough understanding of all risk tolerances.
A Risk Appetite Statement is in place which identifies and addresses each material risk to which the Company is exposed and establishes the degree of risk that the Company is willing to accept in pursuit of its strategic objectives and business plans, giving consideration to the interests of its stakeholders. These material risks have been categorised in the areas of Strategic, Insurance, Investment and Operational Risks. A Risk Management Strategy has been developed which defines the Company’s approach to manage the identified material risks through acceptance, avoidance, transfer and/or mitigation. This is supplemented by various policies and procedures in the respective operating areas, which help identify, mitigate and monitor risks. A risk dashboard rates each material risk on the basis of identified key risk indicators and respective tolerance levels.
The Risk Management Framework also ensures that the level of risk accepted is within the Company’s risk capacity and the level of capital adequacy is in excess of the level prescribed in the regulations. The degree and intensity of the management action is guided by comparing the risk appetite with the potential impact of the risk, likelihood of its occurrence and the costs of implementing the controls.
The entire implementation is monitored at the management level as well as the Board Committee levels, and the overall risk management framework and its effectiveness are subject to both internal and external assurance reviews.
The IRDAI continued to be proactive in framing new regulations aimed at further improving customer experience. These measures, along with continuous efforts to drive simplification and transparency of insurance products and services, are likely to be instrumental in driving growth and furthering the penetration of life insurance in India.
Max Life and Axis Bank is one of the fastest growing bancassurance relationships in the Indian life insurance industry, with both partners committed to provide superior value to their customers.
Following are the significant regulatory notifications issued by IRDAI and other regulatory bodies:
1. The Aadhaar and Other Laws (Amendment) Ordinance, 2018
Through this ordinance, the Government of India amended the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016. According to the ordinance, the Aadhaar number will continue to be non-mandatory for KYC purposes and no linking/delinking of Aadhaar with insurance policies is required. A reporting entity (including any insurance company) can verify the identity of a customer through offline verification of Aadhaar or use of any other officially valid document as prescribed under the Prevention of Money Laundering Act (PMLA). Regulated entities such as banking companies and telecom licensees have been allowed online authentication of Aadhaar, whereas other regulated entities such as insurance companies are still not allowed to carry out e-KYC authentication, thereby impacting the ease of on-barding of new customers. However, as a welcome step, the Department of Revenue, Ministry of Finance, has issued a circular dated May 9, 2019, that provides a way forward in terms of entities, other than banks and telecom licensees, to carry out e-KYC post examination by sectoral regulator (IRDAI for insurers), Unique Identification Authority of India (UIDAI) and approval from the Central Government.
2. IRDAI Circular on Moving towards Risk-based Supervision of the Insurance Sector
The IRDAI is in the process of adopting Risk-based Supervision Framework for holistic supervision of the insurance sector in consultation with the industry. Once the circular gets notified, certain changes in the functioning of a regulated entity would take place. Some of the changes are:
Under this mechanism, each regulated entity would be assessed on its ‘risk profile’ and the overall risk it carries and would enable the Authority to focus more on entities posing higher risk relative to the others.
Max Life’s investment team follows a disciplined approach. In the traditional funds, safety of capital and stability of returns over the long term is paramount. The debt portfolio continues to be of high quality with 95% of the portfolio carrying top ratings of AAA/A1+.
3. IRDAI (Re-insurance) Regulations, 2018
Further to the constitution of a Reinsurance Expert Committee by the IRDAI and submission of its report in November 2017, IRDAI (Reinsurance) Regulations, 2018 were issued. The regulations provide exemption to life insurers from ‘order of preference’ for reinsurance placement related compliance requirement and from cessation limits for placing its reinsurance business with a cross-border reinsurer. There has been an introduction of retention limits of 25% of sum at risk under pure protection life insurance business portfolio and 50% of sum at risk under other than pure protection life insurance business portfolio. Additionally, there is now recognition of the concept of alternative risk transfer (which includes financial reinsurance). Regulations have resulted in better pricing and support from reinsurers and flexibility to life insurers to explore reinsurance arrangements given the retention limits specified in the regulations.
4. Exposure Drafts by IRDAI on Product Regulations
After the last revision of Product Regulations by the IRDAI in 2013, the insurance regulator released exposure drafts in October 2018 and invited comments from the industry. Certain welcome changes are being proposed viz., allowing for a greater difference in minimum and maximum charge by policy year, improvement in surrender values for customers, increase in the revival period to 5 years and allowing for partial withdrawals in pension products, among others.
Draft regulations, if implemented in the proposed form, will present an opportunity to target new customer segments.
Max Life’s Assets Under Management (AUM) crossed the `60,000 crore mark during the year to end at `62,798 crore as on March 31, 2019. This is a growth of 20% over the previous year. The Company ensures the management of its investment assets in accordance with its asset liability management policy for traditional plans and a market-oriented approach for its unit-linked plans. The performance of both traditional and unit-linked funds is commensurate with the risks assumed in the respective funds.
With an endeavour to delivering optimal returns to policyholders, Max Life’s investment team follows a disciplined approach. In the traditional funds, corpus is invested keeping in mind the safety of capital and stability of returns over the long term. The debt portfolio of the Company continues to be of high quality with 95% of the portfolio carrying top ratings of AAA/A1+. Most of the equity portfolios for traditional funds and Unit Linked Insurance Plan (ULIP) funds are large-cap oriented.
FY2019 saw several events that led to high volatility in both fixed income and equity asset classes. In the bond market, the RBI moved away from a hawkish stance to a dovish stance, but volatility in the oil market kept the Indian market volatile. The issues in the corporate debt market persisted after default by a leading financial institution and concerns on some financial companies. Prior to general elections, loan reliefs and other populist measures resulted in worries on the fiscal situation of both states and the centre.
In equities, performance in the markets was polarised and only a few large cap stocks moved up. Mid-cap indices were down significantly in the early part of the year. Trade wars between the US and China, Brexit-related uncertainties, and sharp up and down moves in crude oil prices led to the market reacting to both knowns and unknowns. For the year as a whole, the large-cap Nifty was up 15% while the mid-cap indices were flat. The Company’s stance of sticking to large-cap stocks helped us in navigating the volatility. The pure-equity ULIP funds outperformed the benchmarks.
Initiatives in new asset classes/sectors during the year were:
Max Life reviewed the Stewardship Code as prescribed by the IRDAI and stepped up voting actions across investee companies in best interests of the policyholders.
Report on Market-consistent Embedded Value
Keeping in view the requirements of long-term investors, the Company has been reporting Embedded Value (EV) for the past several years. EV is a measure of the shareholder value arising from in-force policies and net worth of the Company as at the valuation date. The Company uses a market-consistent methodology, as this approach better reflects the value of an insurance company
by explicitly allowing for insurance and economic risks rather than using implicit overall allowance for risks through risk discount rate in the traditional approach.
For the first time, Max Life’s Assets Under Management (AUM) crossed the ` 60,000 crore mark to end at ` 62,798 crore, exhibiting a growth of 20% over the previous year.
EV of the Company, as on March 31, 2019, stood at ` 9,257 crore. Post payment of the final proposed shareholder dividend of ` 319 crore, which will be accounted post March 31, 2019, the closing EV will be ` 8,938 crore. Operating Return on EV (RoEV) over FY2019 was 21.9% and including non-operating variances, RoEV was 27.0%.
New Business Margin (NBM) for FY2019 was 21.7% (at actual costs). Value of New Business (VNB) written over the period was ` 856 crore (at actual costs), representing an annual growth of 30% and a 3-year Compound Annual Growth Rate (CAGR) of 31%.
Market Consistent Embedded Value (MCEV) Methodology
EV of the Company is calculated keeping in view the MCEV principles issued by the Stitching CFO Forum Foundation and the Actuarial Practice Standard 10 as issued by the Institute of Actuaries of India. However, the methodology and results are not intended to be compliant with these standards.
In MCEV, an explicit allowance for the risks is made through the estimation of the Time Value of Financial Options and Guarantees (TVFOG), Cost of Residual Non-Hedgeable Risks (CRNHR) and Frictional Cost (FC).
An overview of the components of the EV as on March 31, 2019:
EV movement analysis: March 31, 2018 to March 31, 2019
* VNB after excluding impact of lower effective tax rate of ` 33 crore, which is part of non-operating variance
Value of New Business (VNB) and New Business Margins (NBM)
VNB represents the value added to EV due to the new business written by the Company during the year. Please find below the VNB and NBM for FY2019 compared to FY2018 at actual costs:
For FY2019, VNB was ` 856 crore, calculated at actual costs, resulting into NBM of 21.7%. NBM at actual costs increased by about 150 bps, from 20.2% for FY2018 to 21.7% for FY2019. This represents a growth of about 30% in VNB, from ` 656 crore for FY2018 to ` 856 crore for FY2019.
The increase in VNB/NBM was on account of increasing proportion of high margin non-par protection and non-par savings products along with the upside from use of lower effective tax rate.
India represents one of the world’s most promising markets for the life insurance industry. A combination of low life insurance penetration of 2.76%, as per the IRDAI Annual Report 2018, and an enormous protection gap of ` 480 lakh crore, coupled with an increasing appreciation of the new generations for the need for financial protection, provides a fertile field for profitable growth. With the closure of the country’s general elections, the year ahead shows promise of stability, a freshly invigorated confident consumer, which should see the life insurance industry grow at a steady pace of 12-15% over the next two fiscals.
Max Life believes in leveraging smart digital technologies driven by Artificial Intelligence and Big Data to enhance customer journeys by making them more intuitive, less intrusive and friction-free.
With a clear vision and well-defined strategy, Max Life is well placed to deliver on the ‘25-25-25 growth’ by 2022 on parameters of VNB, NBM and RoEV. Through the last financial year, the Company has taken steps in the right direction towards further strengthening its multi-channel distribution architecture while increasing the robustness of its proprietary channels, especially agency distribution. With a constant thirst to understand customer needs better and provide a superior experience across servicing channels, the Company has made significant of progress across customer parameters of persistency, claims paid ratio as well as customer loyalty scores. The endeavour will be to grow these to the next level in the years to come by further improving these scores and maintaining a strong position among industry peers. Max Life believes in leveraging smart digital technologies driven by Artificial Intelligence and Big Data to enhance customer journeys by making them more intuitive, less intrusive and friction-free. This has been evident from the various tools deployed across the customer life cycle to enable sellers and servicing staff to make every moment of truth with a customer, a delightful one.