Pawan Kumar Khadka is the youngest CEO of insurance industry of Nepal. He has recently taken charge of CEO of Surya Life Insurance. Our editor Arun Sapkota interviewed Khadka about the contemporary issues of life insurance industry. Here is the excerpts of the interview.
You have worked in the fields of hydropower, cement manufacturing and teaching. What is the difference between working in other fields and insurance?
The insurance industry is an important wing in the financial sector. While comparing insurance and other industries, it is directly connected with the customers. There are two sides to the customer. One is the agency force, which is also our channel that you can consider as a customer and the other is the insured. Relationships with both sides need to be managed. But in other professions there is B2B (business to business).
This area is a ‘Financial Resource Collection Center’. You can collect finance from the lowest level. I have worked in the field of hydropower and manufacturing. There is a need to focus more on fund sourcing and working capital management. There is no issue of fund sourcing in insurance but it has sourcing from the level from which you fund sourcing helps the overall economy. We raise small capital and bring it into the mainstream of the economy and use it in various fields. Looking at both of these aspects, it seems that I have been able to work in a cycle of the economy.
How did you choose the insurance sector?
It is natural to compare with other sectors in terms of opportunities. But my idea is to work wherever you go. We must work hard in any field. If you work hard in the insurance industry, career growth is very fast. Some friends who have joined as agency managers or employees from other fields, after understanding this field well, are making good career growth by making full use of their abilities and skills.
It has been 13 years of operation and Surya Life has an average market share of 4.8 percent. What are your plans to increase the company’s market share?
Last year, Surya Life had a market share of 3.8 percent. During the 7-8months, we have expanded the market by 45/50 percent. In this regard, we have increased the market share to 4.8 percent. We have gained a momentum. In the insurance plan, the priority is to use the innovation and distribution channel properly. We are moving forward to double our current market share of 4.8 percent.
Surya Life’s branch network looks narrow in comparison to new companies. How do you move these aspects forward?
There are two things involved. The current branch network is around 100. We have succeeded in extending the branch network to more than 70 districts. We are aware of the convenience of the service available to the insured. This does not mean that aggressively expanding the branch network is the only solution. Expanding branch network incurs heavy operational cost.We are more focused on giving access to our services through various means rather focusing on branch network only.
Can there be any other means of direct service delivery to the insured other than the branch network?
Now, is the digital age. We are collecting Renewal Premium using ConnectIPS, Esewa, Khalti and other digital payment service providers. Another is to make payments through our own app. And adding numbers of agencies from all parts of the geography. In that sense, our presence is everywhere. In some cases, we are providing services to the insured from the central level. We are delivering after sales service from central level.
It is estimated that the proportion of lapsed policy is increasing due to force selling. How can it be addressed?
In our case, it is not the forceful sales that are causing the lapses ratio to increase. I have observed gaps as insured and companies have not come into direct contact. The existing agents are gradually being displaced due to inconsistent earning. Because of that, that distance between company and insured increasing. In the past, it was not customary for insurance companies to keep all records. There was no other means of communication such as mobile. But now a days various means of communication are available.
In other countries, the growth rate of the first premium is negative. But we are the only country where the first premium income is higher but the renewal premium is lower. We must continue to prioritize renewal premium over the first premium. Since, the first premium collection is very expensive, you have to pay attention to renewal premium collection.
What role can the company play in this context?
We have created different platforms. Like we are also giving information through social media. We are taking the interest waiver scheme to the insured for lapsed policy renewal.
Digital platforms are also helping to a large extent. With the introduction of the practice of not having to physically go to the office to pay through digital medium, the collection of renewal premium is going very well. So it reduces the lapse ratio.
One of the reasons behind the lapses is that there is no communication between the insured and the company. So, the reason behind high lapsed ratio is not only the force selling. The share of force selling may be 5 percent, but we cannot generalize it for the whole lapsed ratio.
The Insurance Board has recently directed all the companies to make provision for 100 percent future bonus within five years. How are you executing it?
Future Bonus Provisioning brings stability to companies. It was also necessary to increase the confidence of the insured while controlling the fluctuations caused by market, which in some cases lead to high fluctuations in the bonus rate.
In the early days, when companies didn’t understand, it had a very negative effect. Growth slows down in the beginning. In the long run, insurers are safe in a way. It also creates a portfolio of risk-free investments.
Surya Life has already prepared for this. None of our bonus rate will decline. We are working on this with high priority.
Future Bonus provision encourages two things. Discourages unnecessary spending. Another thing is to maintain the yield. The Insurance Board has 6 percent discount factor or interest factor for assessing the liability. We are still managing 9.5 percent of the yield. It also helps the provisioning aspect to some extent. This will allow us to create some funds. And it will create some relief to manage future bonus.
Good returns should also be given by making good use of the resources earned from the insured. This step of the Insurance Board will help to bring stability to meet the expectations of the insured.
Sometimes companies have a tendency to bring policies by attracting the insured without looking at the bonus. Can such a system control it to some extent?
Whoever brings which policy may have its own strategy. If someone comes in it in an innovative way, it cannot be called unhealthy practice. There is innovation, it can give good returns to the policyholders, the company itself is good financially and if it can fulfill the aspirations of the shareholders, it should be welcomed.
But when it comes to short bowling, which shows good returns in the short run, not only this but other factors also affect it. If the Solvency Ratio is set by the Insurance Board and the Future Bonus, then the ill practices will automatically discourage.
Looking at the work of the Insurance Board lately, it seems that it is trying to be a little tougher.How difficult is it for the companies?
Our Insurance Act had all these provisions. Mere implementation was not enough. It brings fair practice. If banks can go for financial year closure o mid-July, why can’t we? We must abide by the insurance act, directives and rules regulations imposed by the regulatory authority.
Insurance companies still keep more than 80 percent of the amount collected with the insured in the fixed deposits of banks. Have you thought about any other higher yield giving investment opportunities?
In principle, insurance companies are the first to work for the benefit of the insured. What insurance companies have not forgotten is our primary task to provide financial security to the insured’s family.
We collect an insurance premium for that. We give some of the earnings to the insured and distribute the remaining amount to the shareholders.
Under the Insurance Act, there is no need to change the investment guidelines given by the Insurance Board. There is no risk in investing in the areas specified by the board.
There is not much return on investing in government bonds but there is no risk either. Our risk free investment is fixed deposit of banks. Our first priority is to invest in risk-free investments
Apart from this, there are other areas of investment in terms of whether to invest in other sectors or not. We can do that work collectively. Insurance companies can open a subsidiary company together. Investment can be made in various sectors through the same subsidiary company. It will help boost risk bearing capacity. Through the company, investment can be made in the hydropower or tourism sector.
While looking for other sources of investment, the Government of Nepal may issue development bonds. Such a practice is taking place in other countries as well.
You have been appointed as the Chief Executive Officer for the next four years. How do you see Surya Life in the next four years?
If I can satisfy customers, shareholders, agents and employees, that will be my success. That’s why I’m here.
