Janashakthi Insurance goes back to its roots to fully serve Life!

Janashakthi Insurance PLC Managing Director Prakash Schaffter 

Janashakthi Insurance Plc recently sold its General insurance business, in a mega deal worth Rs. 16.5 billion, to global giant Allianz. It was the biggest sale in the insurance industry and one of the biggest corporate deals. Post-sale, Janashakthi will be focusing exclusively on Life insurance, the very business the brand first ventured into two decades ago. The move is akin to going back to its roots. However, with extra cash (around Rs. 11.7 billion of the sale proceeds were distributed among Janashakthi Insurance shareholders) and single-minded purpose, Janashakthi Insurance is bracing to make a bigger impact. What kind of a Janashakthi Insurance is in the offing? According to its Managing Director Prakash Schaffter, it will be “a transformed and far more aggressive Janashakthi which is going to invest for the future and progress with innovative and disruptive ideas. In line with our great focus on Life business, we will look at paths and places which no one has ventured into or reached.”

Schaffter spent time with Daily FT for an exclusive recap of the rationale for the exit from General insurance business, what it means for the country, insurance market and customers, the likely future of Janashakthi Insurance as well as challenges of the insurance industry. Following are excerpts:

By Nisthar Cassim

Q: Post-sale what have been the afterthoughts?

A: My beliefis that in life you should not have regrets. From a corporate perspective the sale was good, even with the benefit of hindsight. Looking at it from Janashakthi General’s perspective, the vision of the company was always to be number one. In the last few years, the capacity for organic growth of market share was very tough. We managed to retain market share despite the entrance of new players but to grow it was becoming very difficult. If you look at the two leading players in General insurance business who are ahead of us, their market share has been eroding overtime. Within the top five we did reasonably well to be able to keep our market share. We were also mindful of the fact that General insurance was becoming more price competitive. Economies of scale therefore plays a much greater role in the General insurance space. So if you reduce your expense ratios, it makes that much more of a difference in such a price sensitive market. Additionally, regulator-imposed capital requirements were very intensive and our forecast showed we would require more.We as an organisation didn’t think it was fit to be at the borderline and wanted the comfort to be well above.So looking ahead we were going to be needing greater capital for General insurance business. From a growth perspective, to achieve our vision of wanting to be number one, in the past we did make some acquisitions – NationalInsurance Corporation and the General insurance portfolio of AIA. However acquisitions are a very costly exercise and you don’talways get it right. So when the Allianz proposition came to us, we realised that the joining of Allianz and Janashakthi would help propel the organisation to the next level with a very good chance of becoming number one. So it was in the organisation’s best interest to go down that road.

I must also say it was a good deal for Janashakthi Insurance Plc; we saw value in the Allianz offer, especially in today’s context. We felt that shareholders would benefit from it as well. Looking back, we went through some degree of introspection in a sense. We felt that the Life business has much greater potential to grow and it is an untapped market. We as an organisation of late hadn’t really focused on the Life insurance business to the extent we should. In 2017 we did some restructuring by bringing in a new CEO and there was some traction in the Life business. 

Q: You started as a Life insurer and 20 years later you still say you haven’t got it right in terms of focus and success?

A: Yes we started in 1994 as a Life insurer and after about five years entered the General insurance industry. We got more aggressive in General and we lost focus on Life. We are hopeful that with the sale of General insurance, there will be a renewed focus on the Life business. I personally think we could have progressed a lot more in our Life business. However when you are running two business – Lifeand General – withinone entity (prior to segregation) the senior management had to focus on both. We took a view that with divestment of General insurance we will be able to focus on the single line of business and grow it the desired way. Our beginnings were in Life insurance so this new strategy is like going back to our roots and building on what we have achieved over the past 20 years.

Janashakthi, as far as the brand and logo (a lit-up lamp with a tagline ‘Celebrating Light’) concerned to me, is very strong and resonate well more with Life business. I am excited about the journey that lies ahead. Sri Lanka has great potential for Life insurance and we insurers have to take the responsibility to have not maximised or harness the potential. If we can get our sales and distribution right with technology, which is key, then we can do well in the future. The lack of focus previously lends an opportunity for rewards of greater focus. In Life our share had been ranging between 4.5 and 5.5% and it has been eroding from a high rank of fifth to seventh now. Our plan is to regain and increase marketshare with renewed focus.

Q: What are the dynamics between Life and General?

A: General is a business which can be subject to much more fluctuations and exposed to greater risks. Life businesson the other hand is more placid, takes longer to grow and requires different qualities to grow and it is a steady business. From a return on investment perspective, Life should and can give better rewards.

Q: What is the survival rate of Life policies?

A: I must admit it is a very embarrassing rate. Across the industry it is less than 50% at the end of the first year and by the end of the third or fourth year it is around 25-30%. This is an industry problem and we as Life insurers have to take responsibility. The expectation or realisation that the traditional agents must come to collect payments for policy to remain in force may be a contributory factor for this poor survival rate. We need to educate both the customer and the agent that the payment options today are multiple as all have bank accounts. We also need to educate the people to take Life insurance as a necessity and the need to continue their Life policy.

It appears Sri Lankans have a culture of assigning lower rating or priority for risks in life or the need to be insured in the event of when risks actually happen. Sri Lanka’s lapse rates are totally on the opposite direction of some of the other developing countries or those having similar culture. For example, in India lapse rate is way below. Usually the poorer a country, the higher the Life insurance penetration as a percentage of GDP, and lapse rates are lower.

Q: What is the rationale for the re-purchase of shares?

A: Life insurance business which held the General insurance entity post divestiture realised Rs. 16.5 billion. However the Life business itself didn’t need that amount of cash andJanashakthi philosophy is that we are not the custodians of shareholders’ money to just invest and get a return or just to run a business. It is our belief that the surplus money in the business should ideally be given back to shareholders. That is why we had the share buyback which amounted to Rs. 11.7 billion. 

Q: How did you quantify the surplus?

A: We looked at what we would need for the business in the medium term. We felt that the business would reasonably require about Rs. 5 billion. This is by being mindful ofthe solvency requirements and future requirements of the business partly from an acquisition perspective and developmental perspective. We are keen to invest in the business so that we can grow the Life portfolio.

Q:What has been the industry feedback on the sale?

A:Feedback from the commercial world is very positive. Because I haven’t met anybody who has come and told me ‘why did you sell?’ I expected a lot of people to be saying that ‘it is family business, you should have kept it’. Everybody has been patting us on the back and saying ‘it is a fantastic deal; how did you do it?’That’s what they’ve been asking us, which I never had the anticipated. 

As far as the insurance industry is concerned, looking at it from a very macro perspective, insurance industry share prices were undervalued. The fact that we were able to carry out this transaction and at the price-to-book value meant that the industry itself has got a boost. So I think the feedback that I’ve got is that the deal has renewed hope for the insurance industry. Valuation of the insurance industry has improved or will improve as a result. 

With regard to staff, etc., in any acquisition followed by a merger, there is bound to be some degree of disturbance or concern amongst the staff. Pre- and post-sale we have tried to address this to the best of our abilities. We as the former management have ensured thatjob security is there, terms and conditions of employees will continue, the benefits will continue and these we have officially communicated to staff as well in writing both from us and Allianz. So staff have the degree of comfort that they require with regard to their existence. 

The fact of the matter is that when there is a merger there is change and human beings fear change; just as much as I fear change, everyone does. So there will be a little bit of uncertainty arising out of change but I don’t see it as being anything significant. Now several months have passed since the sale and frankly things have continued undisturbed. The staff is much more settled today than they were in the immediate aftermath of the sale. The way I see it, if the integration is evolutionary rather than revolutionary, you won’t have much more disturbance of the staff. In the case of senior levels, where job roles are duplicated, there could be some concern because of that and also because of the fact that job roles may change. It may impact at the senior level but at the level of the office floor people won’tget impacted. 

Janashakthi is by far the larger entity so my take is that though it is Allianz that bought over Janashakthi, I think at a staff level and a cultural level I think it will be an integration or a fusion of the two cultures. I don’t see the culture of the buying entity swamping the entity that was bought. I see what emerged as more than the fusion of the two entities and it is evolutionary rather than revolutionary. I am hopeful that Allianz will handle the transition well so as to avoid a disturbance or a disconnect that may hamper the business. 

Q: In terms of customers, how has the transition been and how will former customers be served?

A: Customers were informed of every stage of the changes that were happening. There has been some concern and obviously because they have been used to the Janashakthi brand. They have been used to a level of comfort with the brand which will not be there going forward. But I think that part we have addressed jointly and I have personally visited the customers along with Allianz to give the customers the assurance they require. 

In terms of products I would hopefully see a fusion of the cultures, whether it’s at staff level or at process level. I think that Allianz would pick the best of both and keep that as a way forward. Because customers were very particular about the fact that ‘we are very happy with the service, we have a great relationship and we don’t like change’. So the customers really require the reassurance that change will be minimum, that the service they experienced with the Janashakthi brand will continue, it is only a new label, that the personnel who serviced them, the processes that they were used to, will continue. I think that’s the reassurance that customers want. Allianz has been giving customers the reassurance that they will continue to enjoy the same or superior service standards.

Q: On the motor side, Janashakthi was fairly aggressive; will Allianz be similar?

A: Here too I believe there is scope for a great fusion of the two. We were very strong in motor and we had a great brand in Full Option. Allianz on the other hand because of its parent had great capacity on the non-motor side. Allianz has an opportunity here to gain the best of both again. If Allianz parent’s strength on the non-motor reinsurance and the aggression that Janashakthi had on the motor are coupled along with the great new sales force of 1,000, it will make the combination a force to be reckoned with.

Q: Janashakthi and Allianz may have had different pricing, risk assessment and business strategies. How do you see these going forward? 

A: As far as Janashakthi is concerned, we had a prudent mix of profitability and market share. So sometimes it’s not only profitability that can drive us because we will lose market share. We always had this prudent balance between the two. That’s the philosophy of Janashakthi General. I’m not sure of the Allianz philosophy.

Q: Do you expect Allianz to ride on the popular Full Option product or will it be rebranded?

A: That’s the challenge that Allianz will have in terms of continuing or improving upon the service level the customer relations that Janashakthi had. That’s the challenge that any business will have. The other thing is to be able to convince customers that they have a brand the customer can look up to. So they that’s part of the business challenge that Allianz has and I’m guessing that they would have thought how they want to play that. The Full Option brand and the Janashakthi brand are available to Allianz for a very limited time for usage, I think six months from the date set. After that the owner of the brand has an agreement with it.

Q: The Full Option brand goes with the business?

A: No. The Janashakthi Full Option brand is not owned by the business but by another company, a third party company and not Janashakthi.

Q: What will you do with that brand?

A: Well, at the moment we have invested a lot of money in developing the brand. As I said earlier, things have to settle down for the moment and then we have to sit back and take a call on what we do with these brands. Whether we monetise them in some way or whether we keep them in a dormant state, that is something we have to think about. At the moment we don’t have a clear idea as to what we want to do. The Janashakthi brand will certainly live through Janashakthi Life and there is always an option to put the Janashakthi brand for other group entities. We have desisted from doing so and that’s again another thought process that has to take place.

Q: With extra cash, are you looking at fresh acquisitions? What are the future plans?

A: We would like the dust to settle for the moment. Post-sale we have to desegregate a lot of the support services such as branches, IT systems, Head Office building, etc. Our focus post-sale has been on desegregation, which we hope to complete within six months. During this period we will look at the channels, especially non-traditional ones, with which we can grow the Life business such as digitalisation and ecommerce, and bancassurance. However as opposed to when collecting regular premia, we recognise that the traditional method of foot soldier going door to door for new Life business is and will remain the dominant force in the medium-term and we will strengthen this channel.

We are also re-looking at our branches. As a combined entity we had nearly 100 branches and post-sale we have been moving out of many. It is an opportunity for us to take a step back and ask ourselves where we need to be in today’s context as a fully-fledged Life insurer. We will have some degree of rationalisation of branches and the eventual number will be 75 or lower as we embark on embracing digitalisation and e and mobile commerce as well as tapping the bank branch and retail networks for insurance premia payments. 

Q: Going forward, what about staff strength?

A: We had about 2,500 staffers handling both General and Life and we may end up with 300-350. General insurance had a permanent sales force and the Life side sales force is entirely freelance now and this will continue. The post of an insurance agent is looked down upon. We need to reposition the agent role as a rewarding occupation not only financially but also emotionally, a role valued in society. Recruitment of the right people as agents is also time-consuming and costly.

Q: What will the parent company of Janashakthi do with the new cash?

A: The parent company is a listed company by virtue of listed debentures. As per publicly available information, the parent company is leveraged and the bulk of the money will be used to retire debt. The parent company can also look at other opportunities in the commercial world. The parent company considers itself an owner of businesses, it is a holding company and the intention is to continue to be in business.

Q: Would you think of re-entering General insurance at a later date?

A: My view is life is full of uncertainties. One year ago if you had asked me if we were selling, I would have said no. There was no intention, but it happened. I wouldn’t ever rule out the possibility of a re-entry to General insurance but it is unlikely to happen in the near future. 

Q: With your renewed focus on Life, will you look at organic growth or consider acquisition opportunities?

A: Certainly we will look at opportunities going forward, because wehave got the capital, we have got the appetite. So if an opportunity comes our way, we will certainly consider it.

Q: What kind of opportunities are you looking for?

A: When we embarked on this journey of seeking a strategic partner, the original idea was for a strategic partner for 20-30% of the business. We were very clear on who we wanted. We did not want someone who come in and buy a stake because it was not money that we wanted. We were looking for a partner who would add value to the business in the long-term. Bearing that in mind we were looking for someone who had experience in the insurance sphere. So it had to be an international insurance company or it had to be a private equity fund or any other who had adequate exposure to insurance to be able to come and share that experience with us. 

We had many people who expressed interest and our negotiations were ongoing. But then we had Allianz which came and having looked at us said that they were interested but would want to buy 100%. That happened very much towards the latter part of 2017. So for us it was a question of being able to convince ourselves as shareholders that we were willing to exit from something which we had grown. That was a huge challenge for us and it is only after then that we set the ball rolling. So from start to finish it was one of the quickest deals done. 

Q: The strategic partner sought, was it for General insurance or Life insurance?

A: We were looking at strategic partners for both. We were in fact looking at an internal restructuring because Life owns General and the problem is that if someone wants exposure to Life business, they will automatically get exposure to General business, so that poses a problem. So we were looking at a restructuring where General was independently owned by the parent so that the person who wanted exposure to General could get an exposure to General and a person who wants exposure to Life could get an exposure to Life. We spent a lot of time on restructuring the company to achieve this end. Amidst this came the Allianz offer and we divested the General insurance business. Now that Life is on its own, we’re not averse to getting a strategic investor because we did want someone to add value.

Q: You are still pursuing the strategy of wanting someone to take 20-30% of the Life venture?

A: Yes, as we have no intention of exiting the Life business but want to grow it and we are looking for someone global who will come share their insights and experience and help us reach the next level. 

Q: From an industry perspective, what keeps a business group in the insurance business – you say it’s competitive whilst at the same time there is potential?

A: I think a lot of people entered the insurance spherebecause they saw that the insurance players were doing well and the Return on Investments (ROIs) were good and they felt that they too could replicate the same model and make money. It is not an easy game and a lot of people have learnt that insurance is a tough business.You’ve got to master the DNA of the business to make a success. So some of the later entrants have realised that it is not as easy as they originally envisaged.

Q:Do you see further consolidation taking place? 

A: Yes and I hope it happens more in the General insurance space as it is necessary.

Q: What is the right number in terms of players in the General insurance market?

A: My personal view is that a country of our size and GDP size and our insurance volumes on the General insurance side would do well with around seven or eight players as opposed to 13 at present. This will ensure there is customer choice and at the same time a large enough slice of the pie for each player.

Q: On the Life side, is there a preferred number of players?

A: In Life the issue is not the price competition that exists in General insurance. I don’t have an idea of a right number but business itself on both sides is becoming more challenging.Regulation is only increasing rather than decreasing. I’m not complaining about it, but the challenges of meeting regulatory guidelines and understanding them is becoming more difficult. Skills sets are limited too. Because the Life side has potential, there is room for growth. One can always argue ‘if there is potential why don’t you have more players?’ But I think there has to be further increase in capital requirements. The previous revision was set some time ago and we need a regular upgrade. So that itself may prove to be a natural deterrent for any more new entrants. Also if a company is not meeting the minimum requirements we need to see how to rectify the position. It is unfair to blame or put the burden on the regulator. 

Q:We haven’t seen an insurance company going bust or defaulting. The industry itself is evolving. Should regulations be tough or remain challenging?

A: I am saying regulations are a challenge and not challenging. From the Life perspective, I don’t know the ideal number but the fact is that regulation increases over a period of time. If I look back on 20 years, today the industry is much more regulated, which is a positive thing. In 10 years we are going to be even more regulated. In that context, the challenge of understanding regulatory requirements and meeting them becomes a challenge for insurance companies. So we need to have internal skills sets and finances to be able to meet the regulatory challenges. Regulations are required for banks and finance companies because they are dealing with public funds. Insurance companies arealso dealing with public finances, especially Life insurance companies. The bulk of the funds a Life insurance company controls is public money. So we don’t take it in the form of deposits, but it is technically the same. This is not so much for General insurance companies which also are holding policyholder money but it’s for one year. So we need a degree of regulation. The regulator has been progressive and the fact that we haven’t had a collapse is a credit to the regulator and prudent policies pursued by the industry. However there is room for improvement on the part of all stakeholders. Having said that, ensuring healthy competition in both General and Life and a level playing field must be encouraged. 

Q: Given the ageing population in Sri Lanka as well as booming healthcare need, what challenges do you see for the insurance industry?

A: Medical insurance marketed by the General insurance sector is the fastest growing business, though it may be less than 5% of the overall portfolio. If you look at countries like India, medical insurance has boomed, especially as the Government is actively involved in promoting medical insurance. We do not have something like that at the moment. The closest is the school children’s medical insurance, which the Government introduced. But even without that, medical insurance has boomed mainly because of the demand from corporates. It will be a healthy sign if there is greater demand for medical insurance at retail/family or individual level as healthcare costs are forecast to be on the rise. This is common in developed countries as medical insurance becomes your number one priority after housing and food.

Q: With around six million people employed by the private sector and given the free healthcare policy in the country, there is a lower number to call it a prospective market for medical insurance?

A: Yes the free healthcare policy certainly takes out a chunk but if you look at the service standards and the middle class, there are opportunities. If you look at what employers provide in the private sector, the limits are relatively low because the employer also cannot afford to be giving high limits. So the question then is, who would protect you for hospitalisation bills which are in excess of what your employer provides? That’s the gap which people should look at. Employers are also not going to keep increasing these limits because it is a huge expense. Once you give a limit you can’t reduce. On the other hand, employers are not too keen on just blindly increasing, because as an organisation grows the number of employees increases and the cost becomes that much more. So employees need to look at it from the point of view where the employer has provided a minimum,he or she needs to go out and buy a cover in the event of a claim which is in excess of corporate limit. Whether you have a bypass, a kidney problem or liver problem, all these costbig money and they don’t really fall within the limits of what most employers provide. If individuals look into purchasing higher limits, insurance companies will also invest time and effort in developing policies which are more tuned to suit people.

Q: What is the future of bancassurance, which hasn’t really taken off in Sri Lanka?

A: Globally bancassurance is at the forefront of Life insurance, relegating the traditional method to the second place. In Sri Lanka some companies have made greater effort than others to grow the bancassurance business, but they are yet to reap the rewards in full. It is a long-term process I believe and banks too have an equally important proactive role to play to make it more successful. We are keen to invest more and expand our efforts on bancassurance too. 

Q: Will Sri Lanka continue to be sought after by global insurers?

A: The investment by Allianz is a huge endorsement on the country. Sri Lanka will attract foreign players which are looking to enter or expand in Life business. In General insurance, foreign players may look at acquisition rather than starting afresh. Even as it is, given the existing foreign players such as Allianz, AIA, LIC, Fairfax and Orient, the Sri Lankan insurance market is colourful. The locals haven’t done too badly in competing with global giants either.

Q: What can the industry and the market expect from the new Life-focused Janashakthi Insurance?

A: A transformed and far more aggressive Janashakthi which is going to invest for the future and progress with innovative and disruptive ideas. In line with our great focus on Life business, we will look at paths and places which no one has ventured into or reached. Our recent brainstorm on a new corporate plan to be rolled out from the second half did address this extensively.