Ever since New York Life International entered the life insurance market in India in 1999, its Chairman and CEO, Gary G. Benanav, 57, has been a regular visitor to the country. In fact, he has attended every single board meeting of the joint venture company, Max New York Life. In an interview to BT's Sahad P.V. and Ashish Gupta, the industry veteran of 30 years, spoke about India opportunities, competition, and product innovation. Excerpts:

Private insurance companies have been around in India for more than three years. What has been your experience till now?

The market has reacted pretty much the way we thought it would. You had a number of players entering the market almost simultaneously as the government fired the gun like in the Oklahoma land rush. Each company came in with different strategies, different products and different geographic purposes. The result was that the entire market expanded. There was a big concern that Life Insurance Corporation of India (LIC) would suddenly lose all its businesses. It's true that lic's marketshare has moved from 100 per cent to something smaller than that. But the total market as well as LIC's business has grown. Also, there have been tremendous benefits for consumers in India because they have more choices, which they didn't have before. Even LIC, because of the competitive pressures, has responded in a way it wouldn't have otherwise. It has upgraded services, product offerings and relationships. The market has grown precisely the way we have expected.

Max New York Life is not among the top three private players. Could you explain that?

One reason is that everybody measures (size) differently. For instance, selling single premium products is different from selling regular premium products with a lot of protection. If you measure sales based just on premium, then you may get a disconnect between strategy and positioning. Our strategy around the world has been to sell whole life protection products with recurring premiums. One doesn't get the actual picture if high single premium and whole life products are clubbed together. But if you measure the sum assured, which is a better reflection of our strategy, then we are in the top quartile. We have a long-term strategy and not short-term one. We didn't get into the market with the idea of quickly becoming the number one in sales and end up with sales that don't match with what we are planning to do. We support the long-term financial requirements of customers not the short-term. Sure there is a place for short term products in the market. But that's not our strategy.

"If we thought the Indian market is of a fixed size, then we would not have ventured into this marketplace"

How easy or difficult has it been for you to design products for the Indian market which is used to one-size-fit-all offerings?

Indian consumers in many areas outside of insurance have demonstrated that they are very discerning. Market segmentation applies here too as much as in any other country. They are not happy with one-size-fits-all strategy. But it's not that hard to design for companies like ours. We have experience in all parts of the world and have the actual ability to design products. This market is as competitive as any other in the world.

Is India similar to other developing countries like Mexico?

India is similar to other countries except for one thing. What has taken 10 or 15 years in other developing markets for product proliferation has taken only three years here. It has been a much faster, accelerated development. It reflects the fact that you have a very discerning consumer here.

You have been taking on LIC for the past three years. How surmountable or insurmountable is its challenge?

We knew that LIC would become better and better over time. If we thought the (Indian) market is of a fixed size, then we would not have ventured into this marketplace. Because the dominance of LIC and their own built-in advantages will mean this will not be a successful market. I truly believe this market has a tremendous growth potential. The fact that LIC had 100 per cent market to begin with did not daunt me. LIC will always be the major competitor in the marketplace. Frankly, LIC for a long, long time will be the number one in marketshare no matter how you measure it. But thankfully, this is a huge market. Let me give you an example of the US market. We have a 7 or 8 per cent marketshare in the US. We are number one in that market. With such a market share we have a huge business. Similarly in India, if somebody in time gets to a 4 or 5 or a 6 per cent market share he will have a very healthy and successful business. We are betting on the Indian economy. It will continue to grow at a strong rate. Then, a single-digit market share will be very attractive in India.

LIC's marketshare is currently 90 per cent. How do you expect that to play out in the coming years?

When I first came here people asked me exactly the same question. Then I said I guarantee that it would not be 100 per cent (laughs). That was a very easy prediction. Now you are asking a little harder question. But I guarantee that it will not be 90 per cent. Foreign players and all private companies will grow faster than LIC, which means LIC's market share will go down. We need to distinguish between shrinking market share and the absolute size of the business. LIC's absolute level of business will grow, but that of the others will grow faster. So I would expect (LIC's marketshare) to reduce beyond the level of today, but exactly where will it go is very difficult to predict.

Your portfolio lacks in pension plans unlike other private players like HDFC Standard Life or ICICI Prudential...

Our priority is putting in place a high quality distribution system, after which we will move on to other products and distribution systems such as bancassurance, corporate agents and so on. One of the lessons that I have learnt is if you try to do 10 things at the same time you tend to do all badly. The strategy is to do one or two things at a time and make sure you get them right. If this were a market that were highly developed or saturated then you couldn't really do that. Pension market in India is in an early stage. It's got huge growth potential especially as regulations are set to change. We are a quality-value player. When we go into pension we will be on the same quality and value plane.

"Guaranteed returns will be there, but expecting 9-10 per cent or even 8 per cent is very unrealistic"

You said you are a quality player. But some private players are very pushy and sell aggressively. In that scenario how do you expect the market to play out?

I have seen similar markets and there are always both companies and customers who go towards the less expensive, quick-sell products. There will always be a segment of the market that goes after that. They may make a lot of sales, but the persistency of those sales will be far lower than that of ours. We sell to quality customers and have a higher persistency rate, which means a high ratio of renewal of premium. You will see many companies making huge sales but have very low persistency. It is not in the best long-term interests of the customers. Somebody who doesn't care about five years from now may not come to us.

Why haven't you gone in for unit-linked products? Isn't that the more profitable business route?

It's a wrong perception. Those who sell unit-linked products-where you pass on the risk to customers-are competing with the mutual fund industry. Our belief is that that role is being performed by mutual fund industry, which is already over crowded. The other is traditional products, where you put the risk on your balance sheet. That's true life insurance business. That's protection-oriented products.

In the context of falling interest rates in India, what is your outlook on guaranteed returns especially when Indians are used to it?

Falling interest rates will have an impact on the returns the clients receive. I know many customers will be disappointed. There is a reason why it's happening. The Indian economy is stabilising. The kind of interest rates people were looking for earlier reflected a high-risk economy. It means if I am an investor, you have to pay me a lot of money to take the risk. But as the economy develops, it becomes more predictable, larger-based and the real rates of return shrink. The real rates of return in unstable countries are a huge 10-14 per cent, while in the developed and stable countries they are much smaller, 3-4 per cent. And as India moves towards that logic, the real rates shrink.

Are you saying that the era of guaranteed returns is over?

Guaranteed returns will be there, but expecting a return of 9-10 per cent or even 8 per cent is very unrealistic in these times. Guaranteed returns will come down as the economy goes through the kinds of changes I talked about.

Why did you pull out of Indonesia?

We were doing very well in Indonesia. We pulled out because we did not agree with our partner on the strategy for the company. We reached a point where we had to buy our partner out or sell out to our partner. It's not a partnership that made sense in the long run and we had clearly different strategies on what to do with that market. And it's more a question of partner relationship issue and the strategy for the company. It was not that we did not like Indonesia, where we were around for more than 10 years. Our partner bought our shares out.

What is your view on the 26 per cent foreign equity cap in insurance?

I don't understand the difference between 26 per cent and 49 per cent equity limit. It's actually detrimental to India to keep it at 26 per cent. At 49 per cent, you have more capital coming to India. Why would you not encourage more foreign investment into the country, particularly when you give foreign investors not one thing more than what he has at the 26 per cent equity? We would ideally like to see the number (equity ratio) going to 50:50. It's the appropriate way to structure a joint venture deal.

Are you happy with your partner Max?

When we decided to enter India the very first criterion was to pick a partner who would live with the concept of a 50:50 joint venture. Especially, when we got only 26 per cent. Based on Max's track record, their reputation as a partner in other JVs, we knew that they understood the concept of a true JV. To this day, I can tell you that we have never regretted. Every time any issue came up we have resolved them very amicably and very smoothly.

How does India figure in your business in Asia? Taiwan is now one of your largest markets...

Within the next five years, the big question is which will be the largest market-India or China. I win no matter which one becomes No. 1 (laughs). Obviously, in time India and China will become the dominant markets in our Asian portfolio.