Premium » Interview

‘Three Things Intermediaries Must Do’

Administrator — Thu, 19 Jan 2012 05:40:38 +0000

Premium: What are the major challenges in General insurance personal lines today?
Mr Ritesh Kumar: Controlling costs. Lets take Motor insurance. It is very transactional. So the way to save on transaction costs is to either give ground up cover or impose a substantial deductible. A deductible is imposed so that the insurance company does not incur the same high cost for handling a small value claim. A Rs 1,000 deductible on a Motor policy is neither here nor there. We also have to periodically revisit the deductible and adjust for inflation.
The client has to understand that small claims means he loses premium (no-claim) benefit.
Premium: How do we do that? Spreading awareness.
Mr Ritesh Kumar: Everyone should play a role in it. General awareness is not possible. The efforts are usually lost. There is more to it than awareness about deductible. Take depreciation. A Motor policy claim is adjusted for the depreciation on the vehicle. In this case, unless the client is experiencing it for the first time, the awareness is high but acceptability is low.

Premium: What is the thumb rule for claims processing cost?
Mr Ritesh Kumar: Three out of 10 policies end up in claims. That is 3.5 per cent market share just on account of Motor claims. Less than 5,000 of the total number of claims take up deductibles and reduce their premium due to it.
Premium: What is the business mix of your portfolio?
Mr Ritesh Kumar: Motor, Accident and Health and Commercial lines are one third each. We are deliberately trying to maintain these ratios. Insurance is about adequate risk spread.
Premium: What is the premium rate trend after detariffing?
Mr Ritesh Kumar: Price discovery being done in the market. Right now the law of gravity is having its effect!
Premium: Apart from Fire insurance is that in Health insurance?
Mr Ritesh Kumar: Health insurance can be seen as corporate, mass and individual Health insurance. Premium rates in corporate Health is getting better, we see a lot more sanity. What is very important to remember is that people don’t value anything that comes free. Yet, corporates can’t afford annual premium hikes. So the whole effort has to be on how to control costs.
It’s easy to tell others to do it so we put in co-pays on our own corporate Health insurance policy. This ensures controls starting with the fact that a person reads the bill when he is discharged.
They also tend to learn how the coverage works. For example there are caps on room rent and so they are more aware about using what they pay for. The bills get contained.
Premium: How did you structure your corporate Health policy?
Mr Ritesh Kumar: We created two categories of employees. We had different slabs of coverage and a cap for the junior level employees and no cap for the senior. We had different co-pays too.
Premium: What about the premium, do the employees share the premium paid?
Mr Ritesh Kumar: No they don’t share premium, only the bill. But this year we have introduced a small token payment for parents.
Basically we told our clients that their employees needed to feel the pain of paying too in order to use the facility in a responsible manner. And once they studied what we had done with our corporate Health policy they just replicated it for themselves.
The initiative is because we have to make corporate Health insuance sustainable. Or the coverages will become narrower since corporates won’t be able to afford full-blown cover.
The other trend that will happen is the room rent gap. Hospitals charge everything based on room rent – most people don’t know that.
My basic analogy is that of a canteen. I tell my Corporate Health clients ‘you want to provide a canteen at your office, would you provide the Taj?’ When put like that they say, ‘no’.
Premium: What you are saying is that the client has to learn to say ‘thus far and no farther’ in terms of the scope of the medical coverage he wants to provide.
Mr Ritesh Kumar: Yes, and the sooner the corporates realise it the better because it is not sustainable if it goes on like this and the only choice is that they will have to withdraw it slowly.
Premium: What type of clients have started making these changes?
Mr Ritesh Kumar: Those who thought of it three years ago. They are the ones who have initiated action in cases of fraud and worked to contain costs.

Premium: Please tell us about mass Health insurance. What are the economics of the Rashtriya Swasthya Bima Yojana (RSBY)?
Mr Ritesh Kumar: This has to be a sustainable opportunity rather than a way of meeting rural and social obligations. The opportunity is that Health and Weather insurance are a way to gradually build rural distribution to get into policies for small householders and so on.
For mass Health insurance to be successful third party distribution will have to be key. We need extant channels as well as third party and technology led distribution.
Otherwise it won’t give results and will not be sustainable. I can’t pay Rs 1.5 lakh rent for an office that brings in Rs 15 lakh premium. We should be able to use banking correspondents and those who sell other products since distribution for those is already set. These channels should be underwriting Accident and Health as well as Weather insurance. This way the business would grow faster as far as we are careful about moral hazard.
Premium: Why does Health insurance premium rise so much and so often?
Mr Ritesh Kumar: There are two factors. One is Health inflation – it is 1.5 to two times the rate of normal inflation. The second is that Premium increases with age. When you combine the two, aggregate risk is higher. What we should do is small premium increases at short intervals and we should communicate why this is happening.
The reason why Health premium increase is surprising people is that the premium rates were set in a particular way historically. When Mediclaim was introduced the premium was low at Rs 1,500 and lower coverages were given at proportional premium which was actually part of the structure then.
This got corrected in the middle 2000s. If I buy a policy today I should think about what the cost of medical treatment would be in the future. People don’t see inflation and I would say to the General insrurance industry: Don’t sell a Rs one lakh policy, you are doing a disservice to the customer. You are giving him a false sense of security.
Just like Life insurance insufficient insurance is no insurance. A minimum cover needed today is Rs 3 or 4 lakh.
It is okay if it is unaffordable but the customer has a right to know what he is buying and the right to be educated about health care inflation.
Premium: What is the role of the intermediary here? Can you tell us what the top three responsibilities of an agent or any other intermediary selling insurance according to you?
Mr Ritesh Kumar:
The first thing an intermediary should do is to tell the prospect about the policy exclusions. What is excluded in the first year, the first two years, the first three years and so on. This is an issue of trust. The client should not feel: ‘When you wanted me to buy the policy you sold me the stars, now you say read clause no 42’.
The next thing is to advise the prospect to take sufficient insurance. It could be Rs 2 lakh or 3 or 4 lakh. It’s okay if it’s unaffordable but the prospect has to be told about healthcare inflation and first and foremost he has the right to know what he is buying.
Then his responsibility is to provide all the correct disclosures. Just like on the Life insurance selling side lots of disconnect happens because of hiding material facts on health and health records don’t tell a lie. The intermediary has to advise the prospect that without proper disclosure claims will run into trouble.
Premium: How do the various channels fare in your overall business?
Mr Ritesh Kumar: 50-55 per cent of our business comes through bancassurance. Another 10 to 15 per cent is direct business and the rest through agency. Agency will play a key role. The cost of managing agency is high but we will get more out of them in the future. We need multi-year products for offering a higher ticket size making it cost-effective and to increase General insurance penetration.
Premium: What about servicing policies. How are the different channels involved?
Mr Ritesh Kumar: Servicing is usually taken care of by third parties. The workshop in the case of Motor and so on. Except brokers’ involvement in commercial lines the post-sale role of the intermediary is marginal. Servicing is more important in corporate policies.
We also have other avenues like SMS, the internet and call centres for servicing. What the intermediary should do is to be the direct contact. He should offer a platform for the customer to contact should he require it.
The more interesting role an agent could play is to cross-sell other General insurance policies to his clients.
Small and medium enterprises (SME) is a significant market for independent agents. Agency is the best channel to assess the risk or moral hazard but their knowledge of preliminary underwriting leaves something to be desired. We want to segment the agent and utilise their strengths for SMEs. SMEs will be buying Health policies for their employees and so on and the premium rates would be higher for SMEs than for large corporates and agents can also earn more.
The outlook for General insurance demand is significantly higher. The premium will be Rs 1,00,000 crore by 2015.

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‘Agents will remain the pillars of business’

Administrator — Tue, 13 Sep 2011 05:40:41 +0000

Mr Ajay Bimbhet, Managing Director, Royal Sundaram Alliance Insurance Company

Mr Ajay Bimbhet, Managing Director of Royal Sundaram Alliance Insurance Company, joined the company in 2007. Prior to that, he was MD of Deutsche Bank. With over three decades of Indian and international experience in retail banking and greenfield ventures, Mr Bimbhet’s in-depth knowledge and understanding of the Indian market stems from having worked in various top management positions with majors such as ANZ Grindlays, Standard Chartered Bank and IDBI Bank.

A Masters in Economics from the prestigious Delhi School of Economics, he has also a strong international perspective having worked in the UK in the 1980s. He later headed the Retail Bank of Abu Dhabi Commercial Bank, one of the largest banks in the UAE.

One of the captains of the Indian insurance industry, Mr Ajay Bimbhet speaks on the challenges facing the industry in India, particularly the yet-to-be-tapped potential of the agency force. Excerpts from an interview with K Nitya Kalyani:

Premium: What has Royal Sundaram’s growth path been in the past few years and what is the leading reason for it?

Mr Ajay Bimbhet: Royal Sundaram has come a long way from the time of its inception. We have been growing consistently each year in all spheres, be it product innovation, customer satisfaction, service standards, or robust premium collection.

For the past few years, we took cognizance of the huge potential offered by retail business on account of the rapidly growing economy, large population, and per capita income as well as the boom in the auto market, and have been focussing on growing our retail book. As a result, our performance has been seeing robust growth and exhibiting a strong top-line. Last year (FY 2010-11) our premium quantum totalled Rs 1,147.09 crore with growth of over 25 per cent, which is better than the market growth.

Going forward, we would continue to build our book by tapping the opportunity in the flourishing Indian retail market. Our business strategy will include a sharper focus on our core activities – prudent underwriting, efficient risk management, leverage efficiency of all the distribution channels, right product mix, excellent claims settlement and customer services.

Premium: In terms of premium income the company has shown moderate growth rather than being in the top three. Your observations.

Mr Bimbhet: As noted earlier, over the past few years we have been witnessing double-digit growth and last year we were way ahead of the market. While we are constantly striving to gain market share, our business philosophy is to underwrite profitable business and have one of the best bottom-line results across the industry players.

Premium: The General insurance business environment has undergone a sea-change in the past four years since detariffing. What are the strategies your company has deployed to take advantage of/cope with this game-changing regulatory move?

Mr Bimbhet: The objective of detariffing was to shift from an environment of tightly controlled tariffs to one where premiums are arrived at after assessing the actual risks based on their characteristics. It also aimed at elimination of cross- subsidisation, which in turn leads to independent pricing in each line of business. However, the industry witnessed cut-throat price wars and subsequent accumulated losses due to heavy discounts on premiums. Further, increasing claims in the highly subsidised Group Health portfolio made the situation even more challenging. Even today, although the industry is witnessing a rise in the rates, it is not sufficient to offset the losses.

To encounter the challenging times, Royal Sundaram diligently pursued a two-fold business strategy. First off, we continued our focus on risk-based underwriting principles. Each proposal is thus studied and rated on sound technical grounds and expertise. To repeat, we are not leveraging the business at the cost of profitability and chasing a higher top-line only.

Given the prolific growth in the retail segment owing to its large volumes, we consciously planned to increase our penetration in Motor, Health and Personal Accident insurance. Our constant effort has been to leverage the opportunity by deploying the right mix of distribution channels to reach out to more and more customers. We have been growing our direct presence by opening up new branches based on the hub-and-spoke model, in tier II and III cities.

In this model, a mature branch expands its reach deeper by sourcing business from smaller adjoining locations. Once these areas start generating substantial business, these are converted into standalone branches. Last year, we added four more branches to the network, making it to 84 branches pan India. Besides, we have been constantly nurturing existing partnerships with dealers, tied agents, etc. and scouting for new ones. The retail business penetration is also supported by our alternate channels like technology-driven online sales and telesales.

No doubt, each of these channels needs to be nurtured. In our opinion the channel that has proved its mettle in the Life insurance space and has stood the test of time across markets is the Agency Channel. This channel is a perfect fit in the Indian insurance ethos as consumers can understand the intricacies of the policy sitting across the table, from the agents, from their neighbourhood, with personal touch and attention. The need for an informed intermediary who can advise risk coverage and handle claims processes, will continue to increase. The agency would thus evolve towards being the mainstay of insurance distribution in the country.

Premium: Four years after detariffing what are the areas you would say where RSA has gained advantage and where it has lost ground?

What importance would your commercial lines and personal lines have, relatively, in your business mix in the future?

Mr Bimbhet: As mentioned earlier, Royal Sundaram has shown growth every year. Out of the total premium GWP of Rs 1,147.09 crore in 2010-11, Personal Insurance contributed

Rs 749.48 crore, registering a growth of 31.8 per cent over the previous year, thanks to our conscious focus on the retail strategy.

On our commercial lines of business, detariffing has helped us strengthen our underwriting approach, processes and controls, risk management solutions and segmentation. This approach has tremendously helped us in clinching new deals while retaining the existing ones. We have kept ourselves away from the race for top line and are currently growing at 10 per cent. As the market reaches stability, we will continue to grow our commercial book.

Premium: Sales is the crux of most insurance in India today. What are your top sales channels and what have you seen as their strengths and weaknesses?

Mr Bimbhet: In a vast country like India with its varied customer segments and needs, it is important for a company to have multi-distribution channels. So, we have a range of sales channels, including a very strong frontline sales force – bancassurance, agents, brokers, Internet, etc. Each of these is performing well, and naturally, has its strengths and potential areas for improvement. The current regulatory environment also poses challenges to some of the channels, and we are implementing initiatives to overcome these and maintain the productivity of our sales channels.

As for the strengths of these channels, India is yet to mature as a market in terms of the way insurance is bought. Every insurance policy needs a certain amount of explanation to understand its clauses and coverage. Agency plays a very crucial role as advisor to the customers, helping them choose need-based insurance cover. Hence, agency is a preferred mode of sales. For the insurer, the model offers a geographical reach that extends deep down in the tier II and III cities in a cost-efficient manner.

An area of concern is lack of awareness among customers. On top of it, misselling or overselling to win the deal worsens the situation. But insurance companies, as they are maturing every year, are putting in constant efforts to spread awareness through campaigns, e-mailers and telemarketing.

Premium: Please outline your ongoing efforts to realise the best performance out of your leading sales channels.

Mr Bimbhet: As our focus is to nurture the retail business, we are taking proactive initiatives to strengthen agency. We provide regular learning via training programmes to handhold our fresh agents and enhance skills of the agency force. Information related to products and company is shared with them via various forums, including website, meetings, collaterals, etc. We have a special intranet to help our agents organise their portfolio and client information for better analysis and functioning.

We also encourage agents to get their IRDA licence. This is one of the biggest hygiene issues that the industry faces. Not having an IRDA licence not only forbids any insurance company to do business with potential agents but also leads to missing out on the opportunity to extend our geographical reach through agents.

Premium: How significant is bancassurance as a channel for you and what is the nature of the sales you make through it? What is the state of servicing and renewal through this channel? What would be the merits and demerits of the regulatory move to allow banks to sell more than one company’s products?

Mr Bimbhet: Bancassurance is important for us and contributes around 10 per cent of our GWP. The portfolio consists of all personal line as well as commercial line products. We view the multi insurer option both as an opportunity as well as a challenge since it opens up all the banks to look for more partners. It will also help the customer make a more informed choice. Product features and service quality will be the key differentiators for us to make the most of this opportunity.

Premium: Is Internet a prominent/promising channel for you? Please give us your experiences with this mode of selling.

Mr Bimbhet: The online ‘bug’ seems to have bitten consumers in India across nearly all industry segments! Online has become a serious channel by itself. All the ground rules followed in the brick-mortar world pertaining to the 5Ps of Marketing, have been replicated to make a success of the online proposition as well. Web enables prospects to get information and guides them towards making right product choice from the entire gamut of offerings.

In today’s ever-changing business environment, it is important that businesses strike the right balance between online and off-line so that business opportunities are maximised. Internet has indeed become a key sales as well as customer retention channel. It offers a simplified online policy renewal facility to customers.

Right from the first year of operation (2008-09) our online business has been growing yearly at more than 100 per cent, both in terms of premium and policies. We have bolstered our online presence with the right off-line support – through phone assistance over the web, online chat support and off-line motor inspection in the cases of break-in insurance cover.

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‘Product, Pricing and Delivery’

Administrator — Mon, 13 Jun 2011 05:40:50 +0000

Dr P Nandagopal, CEO, IndiaFirst Life Insurance Company

What are the three components of a successful insurance industry that are missing in the Indian market? They are, according to Dr Nandagopal, Simple Product, Fair Pricing and Efficient Delivery.

Heading a new company in an old industry is challenging and this Managing Director and CEO of IndiaFirst Life Insurance Company, is trying to reposition insurance somewhat in the minds of the prospects.

Earlier the head of distribution at Birla SunLife Insurance Company and then CEO of Reliance Life Insurance Company, Dr Nandagopal, who started his career in The New India Assurance Company, talks to K Nitya Kalyani of Premium about reorienting the way customers think about insurance, and much else besides. Excerpts:

Premium: IndiaFirst has recently launched a Financial Planning Centre (FPC) and your website called the Lifestore. What is significant about them?

Dr P Nandagopal: These are part of several initiatives to get the customer to buy insurance more voluntarily…so that insurance does not remain a push product.

Insurance is only hypothetically a push product. Why? Because it is not simple to understand, not fairly priced and not effectively delivered.

This is our process of engaging the customer to get comfortable about insurance. And it is only the first phase; there is more to come.

Premium: What are you doing to solve the three problems you have outlined?

Dr Nandagopal: We have taken a complex product and given it simplified documents, friendly language and video presentations. We have video calls going out from our call centres and introduced a simple process called insurance in three minutes. The customer can actually receive a call from our call centre, buy a policy and receive a PDF policy document in three minutes!

We want to make insurance a product that will connect with him and enlighten him.

Premium: What has been the response?

Dr Nandagopal: There is still resistance. Insurance is a bad word… We are redefining the very idea of lifestyle. We are saying you can’t protect life, you can only protect a lifestyle.

Premium: How does this work? Selling insurance is already a long process. Here you are trying to change the way they look at it…

Dr Nandagopal: Our Financial Planning Centres or branches are not sales outlets. They are places where we engage the customer in a conversation. We have 4,500 sales outlets – the branches of Andhra Bank and Bank of Baroda,,our promoters – but we can’t control the course of such conversations as they are not standardised so we have video-conferencing facilities where the customer can interact with

officials from the Head Office, and they can get a feel of discussing

it with the top officials of the company.

Customers can visit our 12 branches today and have these conversations. They come out more and discuss things. We also have customer-to-customer talks. These by themselves may not result in serious business but business will also happen. The idea is not to hardsell but make the customer more willing to look at insurance buying as an option.

Premium: What about the web site..?

Dr Nandagopal: A lot of thought has gone into the creation of Lifestore, our web site. We have put everything that is needed there.

With support like the PFC and Lifestore, our agent will not feel alone. He will feel as if we are there with him while talking to the customer, finding out his needs and taking care of them.

The agent will work as a lead acquirer and also someone who gets us market feedback. Insurance is a technical term, we help the agent translate it for the benefit of the customer.

Premium: In short, how do you describe this approach?

Dr Nandagopal: We are, even more than boutiques are, in the lifestyle business! We have truly outstanding service, our 3-minute policy issuance is an example. We have product brochures in three languages – Telugu, Hindi and English.

Premium: You said at the outset that lack of fair pricing was a barrier to buying insurance in India. Please tell us more about it.

Dr Nandagopal: Thankfully the lack of fair pricing in the case of Unit-Linked Insurance Policies (ULIPs) was addressed by Insurance Regulatory and Development Authority (IRDA). Our products were compliant with the new ULIP norms even before they were announced.

The industry has to still address the issue in the case of traditional products. With mortality and morbidity premium rates things can get dicey…the issue is fair price and that does not necessarily mean cheap price. We have to cover 1.2 million lives and that is a good opportunity to charge a fair price.

Premium: The cost of commissions has been much under debate recently…

Dr Nandagopal: In our company, commissions for traditional products are more or less the same as in the case of ULIPs. We want to convince individual agents about this restructuring of their commission structure, but it is going slow. Yet, we are hoping to get 10 to 15 per cent of our business through agency this year compared with one per cent last year.

Premium: How are you planning to convince them eventually?

Dr Nandagopal: The objective ultimately is looking at it as revenue rather than a rate of commission. The agents have to look at maximising revenue, not commission rate. The number of customers to whom they sell should go up. Besides, persistency will improve and the policy sizes will go up.

I don’t deny that every rational human being wants to maximise his revenue. But that should not come from just a few policies with big commissions. The agent has to get his revenues by increasing volumes.

Single Premium plans have only 2 per cent commission – yet they are selling…

I keep talking to people with

different mindsets, it may not be a gamechanger now but they will have to fall in line.

Premium: What do you think will be happening in financial intermediation five years from now?

Dr Nandagopal: Because buying a financial product needs advice, it needs intermediation. We cannot completely disintermediate. The quality and style of the intermediation may change. Even in the medium term there will be changes. Whether it will be dominated by agents or financial planning professionals or distributors like banks is a question of market dynamics.

Premium: What is happening in bancassurance as a channel?

Dr Nandagopal: I don’t think of bancassurance as just a channel. It is a body of knowledge, it is a school of thought, it is a distribution channel. It is a methodology and that methodology can be brought to tied agency and used for efficiency.

Premium: Is there a need to choose from among the channels? There have been comments that agency would wither away and bancassurance would be the channel of the future…

Dr Nandagopal: India is a vast country. It is a conglomerate of sub-markets. There is a retail market, there is an urban market, there is a rural market… it is not a homogenous market like Europe… So you have a need for diverse channels.

The one-channel-fits-all mode of thinking does not work.

Premium: That is reflected in your company starting to add to your agency force… what are the plans in this regard?

Dr Nandagopal: We have started utilising our bank branch network in a full way now and 4,500 branches of our promoter banks are selling insurance. We hardly have 500 tied agents. By the end of the year we plan to make it 5,000. We launched our first FPC in Chennai recently and plan to have about 100 in the next three to four years. It has to be a mix or all channels.

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For Liability Insurance: Right Place and Right Time

Administrator — Fri, 13 May 2011 04:40:45 +0000

Mr Praveen Gupta, Chief Executive Officer and Managing Director, Ra heja QBE General Insurance Company

“As multi-speciality insurers, we don’t want mere tinkering in our chosen areas; it calls for tremendous understanding of the market and application. So anyone who fits this bill is welcome to partner with us,” invites Mr Praveen Gupta, Chief Executive Officer and Managing Director, Raheja QBE General Insurance Company, in this interview with K Nitya Kalyani.

Raheja QBE General Insurance Company Ltd a joint venture promoted by Prism Cements Ltd India of the Rajan Raheja group of companies and QBE Holdings (AAP) Pty Ltd a wholly owned subsidiary of QBE, Australia, was registered with the IRDA just two years ago. Even earlier, the Rajan Raheja group was present in the Life insurance sector through group company Exide Industries Ltd which incidentally holds a 49.13 per cent in the Bangalore-based ING Vysya Life Insurance Co Ltd.

Mr Praveen Gupta, CEO & MD of the company comes to this role with over three three decades experience in the General insurance industry in India starting with The New India Assurance Company and then at other companies and in various countries like Thailand, Hong Kong and the UK.

Excerpts from the interview:

Premium: Please tell us about Raheja QBE General’s specialisation and the position it plans to take in the Indian insurance market.

Mr Praveen Gupta: Raheja QBE wishes to bring into this marketplace all possible specialities from within the fold of the 125-year-old QBE Group. These include Financial Lines; Casualty; Professional Indemnity (PI); Marine Speciality, including Protection and Indemnity insurance (P&I); Trade Credit, Stand-alone Terrorism and General Aviation.

Since India is going through a period of highly discounted premium rates for traditional General insurance business classes such as Fire and Engineering, we believe it is best to go for what seems like a contrarian model.

These specialities will allow us to underwrite individual products at acceptable premium levels. We wish to remain a manufacturer and would like to leave the delivery to professional intermediation. We have been receiving steady approvals for our product submissions from the Insurance Regulatory and Development Authority (IRDA).

We already have an interesting array of products. RQBE wishes to be amongst the top three insurers in all chosen areas.

Premium: Unlike other General insurance companies you have chosen to be a mono-line company. And that too, a rarer speciality in India. What do you see as the market potential in India for your business?

Mr Gupta: We are actually a multi-speciality insurer. Even within the specialities, if you were to look at the sub-segments, we would perhaps have a very fascinating repertoire of offerings. For instance, Clinical Trials, Pharma Liability, Media Liability, Medical Malpractice, PI for professionals such as Accountants, Architects, Authors, Lawyers and for Projects.

This market is besieged by a fast-growth and big-numbers mindset, which will essentially come from Auto and Health. They will be operating on razor-thin margins, will be more process-driven. Our preferred segments are highly knowledge-driven, where we are endeavouring to bring in the QBE IP.

My personal view is that, thanks to growing awareness and necessity, penetration in these product spaces will be much faster than in any other lines. This is the time to establish your brand howsoever slow and small it may appear, and we believe we are in the right place at the right time!

Premium: How aware are Indian corporates about the risk of liability and the need for liability insurance?

Mr Gupta: There is a growing recognition. However, the very fact that less than a tenth of listed companies have a Directors and Officers Policy (D&O) in place only goes to show that despite some awareness, corporates still do not believe in risk mitigation by risk transference – that is, lowering your risk by transferring it to an insurance company by purchasing a policy.

Premium: How would Indian corporates benefit by liability cover both in terms of the domestic market and international markets?

Mr Gupta: Indian corporates are no longer isolated islands. They operate in very complex environments, be it export–import, technical collaboration, private equity participation, mergers and acquisitions, overseas acquisition, overseas listings, expatriate employees, overseas workforce, Intellectual Property Rights and such.

Despite the best of controls and risk management practices, there are several unknowns looming large. The least they could do is to make a beginning by availing themselves of liability solutions from reputed underwriting companies.

Premium: How does the Indian legal framework with regard to liability of various kinds impact the need/demand for insurance?

What ongoing legal and regulatory developments are you watching keenly that will strengthen the case for liability cover?

Mr Gupta: If you are talking about highlights, I believe it is the entire overhaul of the financial services architecture; emergence of powerful regulators, growing demands of corporate governance and the role of independent directors.

Then, of course, there are factors such as consumerism, fourth estate activism, social media, judicial reforms and determined fast-tracking of pending cases and, last but not the least, the likelihood of class action suits becoming a reality. Nowhere in the world would so much have happened in such a short span of time, thus making this soil fertile for complex and multiple forms of liability solutions.

Premium: What about professional indemnity insurance, what is the interest/awareness levels among various professionals in this respect?

Does much of your work consist of awareness building among potential clients? How do you go about doing this? How are they responding? What are the typical doubts, cynicism or objections they express?

Mr Gupta: To use a cliche, our’s is indeed a blue-ocean strategy. Considerable amount of work is ongoing through several forums

and various partnerships – to

build awareness in segments

where we have a clear value proposition. This could be in the form of seminars, workshops, knowledge exchange partnerships and so on.

Generally, many would say ‘nothing of this sort can happen to us’, ‘India is not a litigious society’, etc. However, when you let them take a look at ongoing trends thanks to a globalising economy and instances of Indian case law, most do wake up to the risks.

Premium: What intermediation channels do you use, if at all, for writing your business?

Mr Gupta: At present we work only through brokers – be they international, national, regional, ‘captive’ or specialist.

Premium: Do you see any potential to work together with multiple channels for your line of business?

Mr Gupta: There is room for speciality agents who could be professionals with first-hand and deep understanding of a specialised area. Please do remember that our chosen areas are not fast-moving products. These call for tremendous understanding and application. At the end of the day it is all about informed buying and selling. Anyone who fits this bill would be eminently suited to partner with us.

Premium: If regulatory changes are needed to enable you to work with intermediaries, what are they and what would you like to see happening?

Mr Gupta: I believe that the existing regulations are good enough. We are a knowledge industry and must ensure that only qualified and trained professionals dabble in our kind of space. There is scope for specialist agents collaborating with brokers. I believe that would bring synergies between strong relationships with as well as understanding of a client on the one hand, and reach/competencies as well as expertise of a specialist broker on the other.

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‘No Business is Bad if You Control Costs‘

Administrator — Tue, 12 Apr 2011 18:40:14 +0000

Mr Yogesh Lohiya, Chairman-cum-Managing Director, General Insurance Corporation of India

General Insurance companies seem to have settled into a more stable course of growth after the trial by fire that followed detariffing four years ago, but their real troubles may have just started. At issue, in a word, is profitability.

The premium rate-cutting that followed the detariffing led to laughably low premium rates but, amazingly, companies kept offering lower premium rates each year as if the party would never end. But, as they say in business, there are no free lunches, and the premium-rate party may be ending in tears soon, says Mr Yogesh Lohiya, Chairman-cum-Managing Director of General Insurance Corporation of India, in this frank interview about the state of the Indian General insurance industry from the perspective of a reinsurer.

As the company that insures the insurer, the GIC’s chief is aware of the compromises ‘direct companies’ are making to write corporate business. They offer low rates that have no relation to the nature and quantum of the risk and compete with each other and quote lower rates for renewal a year later. More to blame are the public sector companies who boast of deep pockets. But how deep, asks the head of India’s national reinsurer in this interview with K Nitya Kalyani.

Excerpts:

Premium: We are now at the beginning of another financial year, and it is four years since the General insurance industry was detariffed. How is the industry doing?

Mr Yogesh Lohiya: Let me say that as reinsurers we are not relying on the domestic market! The level of losses of direct General insurance companies is not comfortable. Their incurred claims ratios* (ICRs) are quite high, especially in the case of public sector undertakings (PSUs) whose ICRs were 80 to 90 per cent and combined ratios** (CR) in the range of 120 to 140 per cent as on December 31, 2011.

Private companies’ ICRs are not that bad. They are 70 per cent plus. Their CR is 100 to 110 per cent. In the last quarter of the financial year just gone by, you will find surprises. Let’s see. I am not anticipating any sign of profitability.

Premium: In such a situation what has GIC’s strategy been?

Mr Lohiya: We have decided to negotiate with direct companies# about participation in their reinsurance programme. We will not provide support just to keep in their programmes.

This is the same strategy as last year’s: That we will decide our participation on a company-to-company basis depending on the quality of their underwriting and by imposing certain conditions if it is not strong. No doubt it is not a regulatory control. We also offer reinsurance commission based on profitability performance of the direct company’s portfolio.

Some companies are insuring Indian interests abroad without knowing the conditions overseas. There are certain types of risks like hydro and gas-based power plants where we are not sure that proper probable maximum loss (PML) assessments and risk inspections are done. In these cases we don’t put those contracts in the reinsurance treaty.

We are even expecting to put a loss corridor. An ICR of 80 to 85 per cent based on the results of each company, their underwriting philosophy, the premium rates they are quoting, etc. are factors that will decide our participation.

Premium: You have developed a cautious approach based on profitability and quality of the business written by the direct insurers. How has this affected the direct insurer’s approach and also the approach of the other, foreign, reinsurers?

Mr Lohiya: At the annual meet of global reinsurers in Monte Carlo, many international reinsurers openly said that they follow the lead of the GIC stamp for Indian business. Lots of European reinsurers are not participating in proportional treaties of companies. But there are many types of reinsurers available and the direct insurers who don’t find the support with us and the larger reinsurers seek smaller regional companies though they are supposed to place their business only with reinsurers whose securities rating is the minimum set by Insurance Regulatory and Development Authority (IRDA), that is a BBB from Standard & Poor’s, but that is their funeral.

There are checks and balances, and they have to get approval for their placements from IRDA.

Premium: Speaking of checks and balances, apart from regulatory requirements, isn’t there any pressure from the stakeholders to stop undercutting sustainable premium rates and stop this discounting?

Mr Lohiya: In 2010-11, there has been a marginal improvement for direct companies. Not, as I expected, with pressure from stakeholders. It appears profitability is going to be bad. Writing business is not an issue, there is no dearth of business. The question is control of claims. In Health and Motor especially, claims cost control is a tool.

If you see the third quarter results of the big PSUs, it is shocking. After eroding investment income, New India had a loss of Rs 98 crore, Oriental had a loss of Rs 200 crore, National had a profit of Rs 10 crore and United India a profit of Rs 200 crore.

These companies have historical stocks in their portfolio, a position even GIC cannot match. GIC had a Rs 1,000-crore surplus as on December 31, 2010.

This is why we are emphasising more on international business, domestic business is killing us!

Premium: You have been reorienting your business mix to make it more international business than domestic. What are the recent moves on that front?

Mr Lohiya: In November 2010 we opened a representative office in Kuala Lumpur to get a feel of what is going on. We are targeting a branch in Brazil. We have been trying to get into the South African market for one and a half years but there are regulatory hurdles. Our Johannesburg consultant is doing due diligence. Dubai and London branches are doing good.

On the internal side, our system of deputing our people to foreign operations is not working out. They are not acclimatised to the language, the climate, the business system… We think instead we can hire a local person of Indian origin as our marketing man.

Premium: Coming back to the Indian direct insurance companies, why are they continuing to cut premium rates on big corporate businesses? The PSUs cited their strong balance sheets and ventured out to cut rates and capture the business. Can they continue to do it four years running? Where do they stand?

Mr Lohiya: They overestimate themselves. Their risk management practices have not been profitable. Having capital is okay but the question is are you writing profitable business for growth? Many have bluechip investments in their portfolio which will give returns but you are selling it off. The way the capital markets are going, stability is something you cannot predict. I don’t foresee any miracles and companies should smoothen it out. It is better to write less business and thus ensure profitability.

You can talk increasing the rates only to a certain extent. When the expense ratio is going up to 42 per cent how can you raise rates to become profitable? How can you make it a 20 per cent, dramatic, increase? What business is there in front of you? Health and Motor. These are businesses you have to control. No business is bad if you control the costs.

Premium: What is the trend in the Motor segment?

Mr Lohiya: We are going to see higher quantum claims. In the old days the private car premium was cross-subsidising commercial vehicle premiums. But that will change. SUVs are giving rise to higher claims. The ICR is 70 to 80 per cent for private cars, especially the higher priced ones, now.

Now Motor Accident Claims Tribunal (MACT) awards are being given at higher amounts. Perception of the value of life has gone up. We are going to see higher quantum claims.

Premium: You spoke of controlling costs in Health insurance also. Isn’t that what the General insurance companies tried to do when they stopped the cashless facility through network hospitals that were not following any pricing guidelines?

Mr Lohiya: That was good. They had to stop the legacy practices of hospitals overcharging without being answerable. Now that that is done, control and monitor the costs in the business. There is a company in the industry that has a 58 per cent ICR. I was surprised – they are very choosy about the business they write and the right price. They price themselves on the high side and offer add-on services. No one minds paying if they are satisfied they are getting good service. Why buy a branded product? Quality. Same thing applies here. There has to be equilibrium between risk and premium rates. This is where claims cost control on individual Health insurance is important. Private sector companies are doing it. They monitor fraud and connivance.

Premium: But the PSUs say their portfolios are too big to impose these controls on…That is why they are floating a Third Party Administrator- Health Services (TPA) to take care of their portfolio.

Mr Lohiya: They are too big and there is no control. Do your work, and if someone is defrauding the company, catch him and kill him.

If you feel like you cannot control it on your own how will someone else do it? You are just transferring responsibility. You are diverting attention and creating bureaucracy.

Simple things. Can we control a

Rs 50,000 expenditure on a Rs 2,00,000 claim? Certain things that are happening are making them a laughing stock. They pay MRP for glucose bottles on hospitalisation claims! They have to get it at half the price. Nothing is difficult.

Today the concept has changed. Premium is available in plenty. The customer thinks that “when I require it, I must get service.” If the PSUs corrected their lethargic thinking it would be wonderful. The private sector is cashing in on this opportunity.

Premium: So, how to discipline the market?

Mr Lohiya: Everybody is deviating from the File and Use norms and IRDA even had a circular recently, warning companies about this. We are writing ‘File and Use’ as approved by IRDA in all policies. No more regulations are needed. The IRDA has one weapon, the File and Use system, use it and kill them.

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L & T Gen: Targeting SMEs through Agents

Administrator — Sat, 12 Mar 2011 18:40:48 +0000

Mr Joydeep K Roy, CEO, L & T General Insurance’s

L & T General Insurance (L & T Gen) commenced business in the second half of 2010. Entering the General insurance arena ten years after private sector companies were permitted and four years after General insurance was detariffed, the company starts with some advantages and some disadvantages too. A new company has to deal with more competition but it can learn from the mistakes made by the companies already in the field!

It is also a wholly Indian promoted insurance company, Larsen & Toubro Ltd being its sole promoter.

At first look, L & T Gen is doing a couple of things differently. It is developing a strong tied agency model for selling whereas most new companies have followed the bancassurance route in order to write volume businesses quickly and to avoid the expenditure and efforts of creating and nurturing an agency force.

The company has entered the field at a time when personal lines of General insurance like Health and Motor are the drivers of the business rather than the older model where commercial lines like Fire and Engineering bring in the bulk of the premium income.

L & T General Insurance’s Chief Executive Officer, Mr Joydeep K Roy, drives the philosophy that the tied agent is a stable source of business while developing multiple channels for selling at the same time.

Mr Roy came into insurance after over a decade with foreign banks in India and has almost ten years’ experience heading agency sales and alternate channels at Tata AIG Life Insurance Company. He brings into this new role the experience of selling retail financial products,

something that foreign banks in India pioneered in the 1990s and also the persistent and aggressive one to one selling that the Life

insurance industry demands.

In an interview to Premium’s K Nitya Kalyani, he talks about the agency model that L & T Gen is developing.

Excerpts:

Premium: How have the first few months of L & T General Insurance’s operations been?

Mr Joydeep Roy: It’s been very good. We have 10 branches and eight resident managers. We have trained and put in place 260 individual agents and will add 300 more by the end of the financial year. From October 2010 all branches started producing business and we even paid our first claim at that time – a Machinery Breakdown policy claim.

Premium: What kind of structure do you have for sales?

Mr Joydeep Roy: L & T General insurance has 300 outlets through corporate agencies and brokers. We will tie up with retail brokers who handle personal lines of business.

The customer needs good advice and a broker is an important link in that chain.

Premium: What’s your major area of focus?

Mr Joydeep Roy: Small and medium enterprises (SMEs). We have created special products for SMEs, especially in the engineering and construction side. We have a special focus on Health and Rural insurance also.

Premium: What are the characteristics of SMEs as a category of customers or insureds?

Mr Joydeep Roy: As a category they are difficult to approach in the sense we have to approach them like corporates but the premium per policy is very low because of their size of operations.

Premium: What about tied agents? What plans do you have for deploying them?

Mr Joydeep Roy: We are building up a separate strategy for agents and that is also to do with SMEs. The SMEs are highly underinsured because any insurance policy they take for the business is only to the extent of bank interest. Some of them buy insurance for liability, electronics equipment breakdown or asset protection.

The additional challenge is that SMEs are dispersed all over the country.

Premium: How can you deploy individual agents to sell to SMEs? Most of the existing agents are almost exclusively focusing on Life insurance and are reluctant to take up General insurance. Even if they do, they traditionally deal with individuals and give them personal lines policies like hospitalisation and Motor….

Mr Joydeep Roy: We have a corporate training programme and we demand their dedicated attention because normally we don’t get agents who do exclusively General insurance business.

We are recruiting agents who are new to General insurance and showing them how this can be a perennial source of income. For those who are already selling Life insurance we demonstrate to them how adding General insurance to their portfolio will stabilise their income.

We find that in Tier 2 and Tier 3 cities like Vadodara, Surat and Coimbatore, there are no dedicated General insurance agents. We plan to train them so that their major focus will be on Health insurance and on developing their sales skills. Selling Life and Health insurance are not very different – that is the message we give them. They can sell specialised SME products like engineering construction, engineering risk and project risk covers and, for the very large SMEs we have liability policies.

We are committed to developing this range because our approach is very unique, it is based on sustaining agents’ earnings.

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‘Become a Super Star!’

Administrator — Sat, 12 Mar 2011 18:40:24 +0000

Mr Edwin P Morrow, Chairman and CEO, IARFC

Mr Edwin P Morrow, Chairman & Chief Executive Officer, International Association of Registered Financial Consultants

Say Financial Planning and the well-informed insurance agent will recognise it as THE recommended thing for him to blossom into an advisor instead of being just an agent. To evolve into someone who is paid for his financial advice rather than someone who collects a commission for selling financial products like insurance.

With the surge of interest and activity in the insurance industry, selling insurance is the ultimate challenge for any company. And when you talk of insurance selling, you talk of agents. The word ‘agent’ brings to mind commission and that is what is disappearing before our very eyes!

Enter Financial Planning then. What is Financial Planning? Where do you learn it and how will it help? These are the questions that Mr Edwin P Morrow, Chairman & Chief Executive Officer, International Association of Registered Financial Planners (IARFC) answered in an interview with Premium’s K Nitya Kalyani.

IARFC was started in 1984 as a forum for exchange of ideas

and Mr Morrow, who himself started his career as a Life insurance agent, has been heading it since 1999. The

association gives out the Registered Financial Planner (RFC) qualification and has about 8,000 qualified members today – starting out with about 600 in 1999 when Mr Morrow took over as CEO.

Yes, it requires dedication and hard work to become a financial planner, and no, it is not all theory and a degree; but a practical skill that will help you enter a different phase of your career, is what he says.

Excerpts:

Premium: What is Financial Planning as a qualification, what does it involve?

Mr Edwin P Morrow: Most people think that Financial Planning qualification requires a lot of academic and theoretical study. There are some academic subjects of course, like economics and finance. But financial planning is knowing more about taxation, estate-planning and about the underlying products.

Premium: What is the differentiating factor in RFC’s Financial Planning qualification?

Mr Edwin P Morrow: Financial planning that we teach trains you in practice management and marketing. What is the purpose of qualifying in something if there is no flow of prospective clients?

And the clients have to understand what they are paying and what they are receiving in return for it.

Premium: Do they? We find they are reluctant to pay for something they perceive as built-in…and hence agents are reluctant to spend on financial planning courses…

Mr Edwin P Morrow: In today’s society, everyone knows that if you buy upscale products they are expensive. The manufacturers of those products offer you guaranteed money back or fix it if it does not work. We teach planners to give that guarantee, to stand by the plan they have created.

Many take academic courses in financial planning but cannot produce a financial plan. That is why the very best products are expensive. The best surgeons are expensive – and they save your life!

Premium: So what does your course teach?

Mr Edwin P Morrow: We train people how to produce a financial plan using software. Once they master the software, they can do it on any other package, it is only a tool. They must give their clients a written plan because today they have to assess assets and liabilities of the client and, tomorrow when the client dies, they have to implement that part of the plan.

A good financial planner has to learn how to gather information, to get people to trust him or her and give confidential information to help make the plan.

For this the financial planner gets paid a fee. If an insurance agent does this then he gets a commission from his company.

Premium: So why financial planning?

Mr Edwin P Morrow: Because

insurance is not the only tool in financial planning. Sometimes insurance is not even part of a financial plan. Sometimes the first step of a financial plan may not involve any investment at all. A non-investment step may be first.

Financial planners come from various industries. Most of them come from Life insurance, but that is not all that they do.

If you look at the business cards of Top of the Table (ToT) members of the Million Dollar Round Table (MDRT) you will see they have their name and the name of their independent company. Most of them don’t put the name of the Life insurance company they represent on that card.

This is the trend in the US. Twenty years later it will happen here too; so, better be prepared.

I like to quote what Wayne Gretzky, the Canadian ice-hockey champion said about his game: “I have to be skating where the puck is going to be, not where it’s been.” Similarly professionals have to see where things are going and get prepared for it.

Premium: How did you get into the IARFC activity?

Mr Edwin P Morrow: I started in 1962 as a financial services professional and started selling Life insurance a year after that. IARFC was started in 1984 as a forum to exchange techniques and, when the then CEO retired, I took over in 1999 when we had 600 members. We have 8,000 now and are adding almost 1,000 each year. My work is honorary and I do it as a payback to my profession because I believe that the more you give, the more you get.

Premium: What are your observations about the situation in India in Life insurance selling, training and financial planning awareness?

Mr Edwin P Morrow: Without meaning to do any harm, insurance companies here have damaged the growth of the profession. There are too many types of policies. They are complicated and confuse the public.

Agents are spending time learning products instead of learning customers! This comes in the way of true financial planning. Not every problem can be solved by an insurance policy!

Premium: But there is a lot of training….

Mr Edwin P Morrow: The industry has also complicated itself by not using outside people for training. The in-house trainers or the former insurance industry people who are trainers are nice guys who were not long-term successes at selling. It is obvious why they are in demand because the really top guys who are successful in selling are too expensive. But they are the ones who are valuable trainers since they speak from real results.

They are the ones who are valuable because, how do you convince someone to deal with a ‘No’ if you have not done it yourself.

Premium: In this stage of development of the insurance industry in India how can an agent or a financial planner ask the customer to pay for his services? The concept is unknown in India.

Mr Edwin P Morrow: There is a simple way for the financial planner to assert and establish that he should be paid a fee. Say ‘No’ and walk away. The problem is the agent does not have enough confidence in what he is doing, the value of what he is offering.

But those who don’t learn to do it, they will never be superstars. That’s the market today.

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Risk Management for the Risk Manager!

Administrator — Sat, 12 Feb 2011 05:40:28 +0000

Mr Michel M Dacorogna, Deputy Chief Risk Officer, SCOR group

An insurance company helps the policyholder manage his risks. But what about the risks faced by the insurance company itself? In an interview to Premium’s K Nitya Kalyani,

Mr Michel M Dacorogna, Deputy Chief Risk Officer, SCOR group discusses the risks that insurance companies face, especially in an emerging market like India.

SCOR Re, the French reinsurance company is equally present in the Life and General insurance reinsurance segments. It is celebrating its 40th anniversary and spreading its network in

Asia and Latin America among other areas

of the world.

It had gross written premiums of EUR 6.38 billion in 2009 and a net income of EUR 370 million, an increase of 17.6 per cent compared to 2008.

Mr Dacorogna’s role is to develop the internal model for the SCOR group, lead the asset and liability management process of the company and assist customers – the direct insurers – in determining the best reinsurance structure taking into account the full portfolio of asset and liabilities.

Excerpts from the interview:

Premium: What trends are you seeing in reinsurance recently?

Mr Michel M Dacorogna: There is more concentration of population that is wealthier than before, so they are insured more. So there is a trend of concentration of risk for the insurance companies.

On top of that people have become much more courageous. They live in areas where there is more catastrophic risk.

Take the example of Los Angeles; the population has increased there much more than in other parts of the world. I am taking the example of the US but I am sure there are similar areas in India where earthquake risk is higher.

Mumbai itself is an example of a place where risk of natural disasters is high.

Premium: Yes, Mumbai is an example of how population is increasing in a location prone to the risk of natural disasters. But there is not much insurance concentration, it is increasing only now.

Mr Michel M Dacorogna: There was not much insurance before, there is more coverage now. It goes with the social and political changes.

As a society becomes wealthier, people have the tendency to get more insured. It is normal, it is part of development. Switzerland is one of the wealthiest countries and they are the most insured people. People pay the most insurance premium in the world in Switzerland.

Premium: Has this increased their premium rates. Does affordability increase their rates? Is that why they pay more premiums?

Mr Michel M Dacorogna: The risk tends to go up because they are richer. You are richer so you have more to lose, exposure gets larger. Premium gets higher not because of the affordability, I don’t think so, but people have more to lose.

Usually when people become more sophisticated, they see risks they did not see before. It is a matter of perception. Richer people become more risk-averse.

If you are hungry, the risk of being hungry is not a big risk. If you have not thought of retirement then retirement planning is not a big risk. If you don’t have a pension fund then the pension fund risk will not be there!

What happens when the population gets wealthier is that the peak risk increases. The risk of catastrophic claims increases.

The question is how we master those risks. We master them using techniques like modeling and analysis. The shareholders, the regulators and the society are looking at insurance companies and how we make money.

As society gets more demanding on business, they see whether we are charging premium in a responsible way or not. So we have to explain and justify how we are charging premiums.

The subtle point is that we know how to do it and we are able to do it. Thirty or forty years ago we were not able to do it. We did not have the data, the computers or the mathematical techniques for forecasting, treating or analysing risk. When I was a student of Physics at University of California, Berkeley, we used the most advanced computer for analysis. It was slower than the laptop I use now!

Premium: What impact does this have on the way insurance is done in Europe and in a place like India?

Mr Michel M Dacorogna: I think the trend is to replace an accounting view for managing the insurance business to a risk view. In Europe we are forced by regulators to do so since solvency II was voted in last April and will be in place by 2013. This requires companies to run their risk models and be under the scrutiny of the regulator for the accuracy of the risk management.

So risk management is not just an internal thing any more. The regulators, the rating agencies, all have a look at it. This trend is not going to go away.

Premium: What is its significance in India?

Mr Michel M Dacorogna: In an emerging market, lots of people would compete to get market share. If I were an investor, I would watch. Many of the companies would disappear, there would be lots of mergers and acquisitions. I would look at the companies that have a good risk management system. There are companies taking unacceptable bets. This can be very, very dangerous especially on the Life side.

Premium: What dangers are the companies exposing themselves to?

Mr Michel M Dacorogna: Annuities could be dangerous since they are long term policies. Guaranteed return policies are a big risk. About 2 per cent guarantee is okay, but let us say 7 per cent, that would be dangerous because it depends on the investment markets and their performance.

If you take the 20 largest bankruptcies in the world of insurance companies. They did not go bankrupt because of mortality but because of investment markets. I have seen market returns going from 25 per cent to 0 – you will not see that volatility in mortality!

In emerging markets this is more dangerous because the risk of extreme events is higher. If you study such markets they crash every three to four years. They are events having what we call ‘fat tails’.

Premium: SCOR is equally strong on the General insurance side too. In India, since the cross-subsidy that existed earlier has been removed due to detariffing, the premium rates have crashed badly in the last four years and investment income, which was the cushion, is also subject to the vagaries of the investment market as you rightly said. How can this sector manage its risks?

Mr Michel M Dacorogna: There will be a lot of consolidation on the General insurance side as in the international industry – Allianz, AXA, Royal and SunAlliance…. You will see the same trend here. People have to learn that you have to take on different risks and not put your eggs in the same basket.

Premium: There are monoline companies in India, especially in Health insurance…

Mr Michel M Dacorogna: Personally I am very skeptical about monoline. There was big trend in monoline Credit insurance companies before the bust.

Premium: What should the General insurance industry do to de-risk itself?

Mr Michel M Dacorogna: It is easier to sacrifice the future by reducing the premium rates. This is a problem with poor underwriting. It is a common fault in the industry. When there is pressure people find it easy to get more reinsurance, seek more investment, rely on the capital market for returns or do better underwriting. These solutions are in the order of difficulty. But long term, better underwriting is the solution.

Premium: One of the reasons for pressure on premium rates is that General insurance comes up for renewal every year…

Mr Michel M Dacorogna: And so you have the possibility to correct the mistake the next time! That is the positive side of it. The negative side of it is that since it will come up for renewal some people try to win market share this time and any rate.

Premium: Regarding the massive rate-cutting how do markets correct themselves in such situations?

Mr Michel M Dacorogna: Solvency is a tool. The other way to correct things is when reality hits! It will get difficult to get reinsurance, shareholders will start pressuring the company when there is a trend to lose money. That will correct the market. We in SCOR are very, very conservative about this.

Premium: So you say that in Life insurance the investment risk is not sustainable and in General insurance underwriting quality has to become important. What can help the industry avoid these risks?

Mr Michel M Dacorogna: Regulations should be more oriented towards risk. And companies should put more emphasis on risk than cash flow. You cannot count on naïve capital for long!

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Commissions Should be Rationalised’

Administrator — Tue, 13 Jul 2010 18:00:18 +0000

Mr S S Gopalarathnam, Managing Director, Cholamandalam MS General Insurance Company

In April 2007, Indian General insurance business was taken off the tariff, the price list for many types of General insurance which had been statutory for decades. Some tariffs were very high – for Fire insurance – for example. Others were too low – like Motor insurance, especially Motor Third Party Liability. This led to many distortions in the way the General insurance business was done and to the profitability of the companies.

After detariffing there was a distinct difference in the way the public sector companies conducted their business and the route the private companies took. Earlier private sector companies concentrated on picking up the most lucrative Fire insurance business but, after detariffing they quickly vacated this space due to the high discounts in premium rates.

That is when they started concentrating more on individual business – called personal lines – as opposed to corporate business. Their premium growth rates fell sharply, sometimes to the negative, and premium collections stagnated.

Cholamandalam MS was one of the private sector companies that also chose this path towards personal lines like Health and Motor. Today, it is consolidating its business by giving up unprofitable clients and cutting costs – measures aimed at profitable growth, as Mr S S Gopalarathnam, Managing Director of the company says in this interview.

Read ahead to see some interesting nuances in the General insurance industry which is reeling under losses and where each company is trying to find its own way out.

Excerpts:

Premium: What are your views on the insurance commission debate that is going on in the Life insurance industry?

S S Gopalarathnam: Forty per cent commission in the first year is quite a bit. In my opinion the commission structure should not exceed 10 per cent in the first year.

I am talking purely from the customers’ point of view. If I am paying Rs 10,000 premium I don’t mind giving Rs 1,000 to an agent who has facilitated my buying as a consumer. Even that is a bit too much.

Forget insurance for a moment. Take comparable retail products. What is the margin that is available for a retailer? At best, five per cent or 10 per cent. Assuming this is financial advice, in my opinion, ten per cent should be the maximum commission for an individual agent.

For a corporate agent it can be 10 + 5 because he has expenses. Like rent, electricity….

Premium: On the other this is an additional activity for any corporate agent and selling insurance is on marginal costing basis….

S S Gopalarathnam: You should look at it as an opportunity cost for the corporate agent. A bank or a non-banking finance company (NBFC) gives a desk, computer and connectivity for an insurance person. But for this, they would have used the resources for the expansion of their core business.

Premium: But only because they have the infrastructure do they get this opportunity to sell insurance….

S S Gopalarathnam: One can always take the view that the infrastructure is already set up Yet, the infrastructure has a cost to it and it is also an opportunity lost. If it does not work out then they have to bear it.

But when it comes to it, selling is easier for a bank than an individual agent. There is already an existing relationship, you are able to connect with the person and selling efforts are much less.

Premium: Coming back to Life insurance commissions, is the current structure of higher first year commissions putting the General insurance industry at a disadvantage? Do you think agents show less interest in taking up General insurance due to this disparity?

S S Gopalarathnam: Looking at it from General insurance companies’ point of view, we have enough opportunities to penetrate the market. I don’t believe that agency is the only source through which we can penetrate the market.

Take direct sales. Our marketing costs are 14 per cent on an average across channels. But the productivity of our direct sales team is nearly Rs 1 lakh a month whereas the productivity of agents is only Rs 30,000.

Premium: Is a 14 or 15 per cent marketing cost good?

S S Gopalarathnam: It is one of the best. Our target is to bring it down to 10 per cent, the level of commission level pegged by Insurance Regulatory and Development Authority (IRDA) eventually.

In some classes of business like Motor it is 10 per cent, Health has 15 per cent commission. But, as I said, the long term goal for Chola MS is to bring our total management expenses to 10 per cent.

Last year we closed the year with 14 per cent. We were at 15 per cent the previous year and we brought it down by one per cent. My three year target is 12.5 per cent and for five year is 10 per cent.

Premium: This is your background as a cost accountant being put to use!

S S Gopalarathnam: Actually it was an interesting exercise. Detariffing opened our eyes. Due to it we look at our management expenses, and the way we do things a lot more closely.

We embarked on two projects, War on Waste I and War on Waste II. We commissioned two studies that went from May 2009 to March 2010. One talks about materials and process waste. Second is people and productivity. By implementing the suggestions that emerged from this, in one year we were able to knock out Rs 6 crore expenditure.

Premium: Could you elaborate?

S S Gopalarathnam: It ranged from stationery and IT consumables to power expenses, rentals and communications costs. We saved Rs 2.8 crore on materials and processes.

We brought down the number of branches from 118 to 113 closing unviable branches. We brought down the number of personnel across all functions including underwriting, marketing, claims, operations and so on.

This was not just an internal review. Both the studies were done very professionally using outside organisations. That brought in objectivity in the decisions and implementation. The study was conducted after looking at the best run organisations in India and some global ones in the context of our company

War on Waste II has increased our branch and employee productivity. It is now Rs 1 crore per employee and the ideal is Rs 2 crore. We are aiming for Rs 1.5 crore in the next one year. It is a tall order but we can do it. After this study our employee productivity went up by 20 per cent. We had 690 employees which we brought down to 660 but we grew the premium by 15 per cent.

Premium: Chola MS’ premium levels are still very moderate compared to other companies in the industry. And cost cutting and consolidation is something that a more mature and larger company would do. Why did you embark on this?

S S Gopalarathnam: Not necessarily.We are part of the Murugappa Group. We have access to global strategy and we are very well trained in what a company should do.

In the first couple of years, like any typical private sector company we were trying to find our feet. Then we embarked on very high growth, we had 36 per cent compounded growth.

Last year onwards we decided that growth at any cost will not help because pricing was going haywire.

At a time of detariffing, when your basic fortunes are in deep stress, growing very aggressively will mean that you will burn a lot of capital. The issue is: are the promoters willing for that? The promoters are not ready.

If growth destroys existing capital in a very big way, we have to see how much the promoter is sensitive to it.

We decided that we need to conserve capital in order to motivate the shareholders. That is very, very important and that is the recommendation of the global consultants. We are not in a hurry to pick up market share. We want to establish our fundamentals very strongly. Both the promoter groups, Murugappa and Mitsui Sumitomo Insurance are like that.

Premium: What is your short term plan for business growth?

S S Gopalarathnam: Our strategy is that in the next two years we will grow in line with the industry or marginally it that. Last year, 13.7 per cent was the industry growth, not taking into account all the specialised players. We grew at 15 per cent. This year industry could head anywhere between 16 to 18 per cent, so probably, we will grow 20 per cent.

Premium: Your premium collection in April 2010 showed a negative growth in spite of your 15 per cent growth in the previous year. What was the reason for that?

S S Gopalarathnam: We reorganised the Group Health business because it was unprofitable. We had Rs 25 crore Group Health premium last year. This year it is only Rs 1 crore. We almost exited it because all the big clients had 150 to 160 per cent loss ratios.

Even this year you will not see us growing very much. You will see us doing Rs 900 to 950 crore, a growth of 20 per cent. At Rs 950 crore if I cannot make Rs 15 to 20 crore profit….

Premium: Once an employer, your Group Health Insurance client, offers a benefit , he cannot withdraw it and is forced to continue. So how are the customers reacting to insurance companies withdrawing covers or quoting higher rates for Group Health?

S S Gopalarathnam: Customers are also realising Group Health is hitting General insurers too hard.

Group Health as a cover is going down.

Premium: Individual Health is still supposed to be profitable. Last year you increased Individual Health policy premiums across the board. How did your customers react ?

S S Gopalarathnam: India is slowly becoming aligned to the global market. If you take the US or any developed market, when the claims incidence go up, the response of the insurers will be to increase premium. Because, in any insurance 60 to 65 per cent of any premium goes away in claims, sometimes much more.

If 60 to 65 per cent becomes 70 to 75 per cent then viability becomes a problem.

Typically in Health insurance there are teething problems. When you go to a hospital they first ask you if you have insurance and then everything follows! On top of everything medical inflation in India is a reality.

For example, you take anything in healthcare, whether it is room rent or surgeon’s fees, if it was Rs 100 last year, the minimum is Rs 115 this year. Just tabulate and see for yourself.

It is that people have to get themselves hospitalised for treatment. This is one industry where the curve goes only up. Even in small towns the inflation is there but the base may be different. And that is really affecting Health insurance in India. There is an inbuilt inflation.

Premium: Third Party Administrators (Health Services) (TPAs) failed in curbing costs for insurance companies. This could have also been a reason…

S S Gopalarathnam: TPAs did not have the basic drive and motivation because they were not the payors. If you are the person bearing the cost, it focuses your mind a lot.

Premium: What do you see the industry doing this year?

S S Gopalarathnam: You must have seen last year that the really aggressively growing companies have started slowing down. Many of the top General insurance companies had marginal growth.

The operating profit in 2008-09 was much higher. Ours was Rs 11 crore and the profit before tax was Rs 9 crore. In 2009-10 the operating profit was only Rs 2 crore. But actually this would have been much better at around Rs 14 or 15 crore if not for Group Health losses. We had a final net loss of 12 crore. Our strategy is not we will not grow at any cost.

Premium: What would you lose out in the market place because of this?

S S Gopalarathnam: Nothing. I expect General insurance premium to go to Rs 50,000 crore in three years, in 2013-14. Last year it was Rs 35,000 crore.

In Rs 50,000 crore even if I get four per cent market share it will be Rs 2,000 crore. So it is not small.

My reading is also that in financial services like banks, mutual funds, NBFCs and so on, where there is a multitude of players and very little differentiation you will not find a single player cornening more than 15 per cent market share. That is already seen in the current situation.

Take New India. Its market share is 14 or 14.5 per cent. ICICI Lombard is around 10 per cent. We have to see how SBI General does. Each player can have 4 or 5 per cent. Eventually if pricing improves we can look at increasing market share. But pricing is so low that you cannot reduce further.

Premium: If that is so, why are companies chasing market share? There are huge fluctuations in growth rates.

S S Gopalarathnam: Their promoters worry. Their CEOs are under tremendous pressure for profits and performance. If we are individual investors investing in the share markets we want to see the profits; won’t the promoters and boards demand to see profits?

The aggressive growth is pent up energy. New companies or new joint ventures are very active. But growing in this phase, the detariffing phase, brings in more losses. One quarter or two of losses is alright but after that, promoters and boards get jittery.

As you grow very rapidly and also make losses, in the current solvency regime you have to beef up the capital to maintain the 1.5 solvency ratio.

If they don’t get one rupee dividend after seven or eight years and are expected instead to invest more capital, promoters start putting pressure on the management.

Premium: Did that happen in Chola MS too?

S S Gopalarathnam: Yes, we too have promoters! They want profits sizeable enough to declare dividends. We need to bring in responsibility. I feel the insurance industry has given too much to the customer. A good organisation is one that balances the interests of various stakeholders. Customers, employees, shareholders, reinsurers, a fine balance is needed among them.

When you give 90 per cent discount to the customers what is left for the rest?

Premium: But those large discounts are being given only for Fire insurance and Engineering insurance which are bought by the big, corporate customers…..

S S Gopalarathnam: Even in Motor insurance there is minimum of 45 per cent discount. It even goes to 70 per cent. To get the business the new players give discounts.

Very few companies have combined ratios under 100 (This ratio indicates that the insurance making underwriting profits)

Our aim is strategic growth in line with the market. You cannot be static. If the market is growing at 20 per cent, you have to grow at 20 per cent too.

Premium: What is the future of Health insurance, you have said in your earlier interview to Premium (See Premium, ‘80 % Business willbe Personal Lines’, Premium, February 2009, Page 16) that Health insurance is the business of the future.

S S Gopalarathnam: Individual Health will be a huge business in the future – it has to be actively promoted. One of the internal challenges for the industry is quick clearance of products. We have filed four to five new Health policies with IRDA and are waiting for clearance. The big drag is that we are not able to launch new policies.

Second is that we need to ensure that the agency force is taking this up and really doing it well. Especially the traditional channels like tied agents and direct sales.

Individual Health has doubled from Rs 7 crore to Rs 14 crore premium last year. This year we want to take it to Rs 40 crore. It is happening but it needs to happen more.

Premium: What is the bottleneck? What do you need to do to make it happen more?

S S Gopalarathnam: It does involve selling. It is not like Motor insurance which has a compulsory element. Though there is customer demand, the agents will have to take a lot more interest.

Bancassurance channels are doing well. Whatever growth you are seeing in Individual Health is due to such channels. Individual policies are more popular in bancassurance.

Agents’ reluctance or inability to sell is what you need to overcome. They should actively market it. They should look at it as the market of the future.

If a Motor policy has Rs 10,000 premium and Rs 1,000 commission, then Mediclaim has Rs 6,000 premium and Rs 600 commission. That is not much of a difference. The agent somewhere has to create a mindset on how to cross sell Health to a Motor customer.

It is a question of historical mindset. When the commission flow is there in other areas like Life insurance, General insurance selling appears far less glamourous. The attitude is ‘do Life insurance, get easy commission, keep going’.

Premium: Is your ability to attract agents hampered by this? Should there be a moderation of commissions on the life side?

S S Gopalarathnam: There should definitely be moderation. The Swarup committee recommendation of doing away with commissions is a step that has to come much later. First moderating the first year commission should be done.

Premium: If that is done, if Life insurance commissions are evened out rather than being ‘front loaded’ in the first year, what will be the impact on General insurance agency? Will Life insurance agents look more to General insurance selling or will they exit the business of insurance selling as a whole?

S S Gopalarathnam: Leave the profession? I don’t think it will happen. I have three categories of agents. One is the entrenched and highly productive agent. The second is reasonably entrenched and trying to be productive and the third is new agents and they are the cats on the wall.

The third category will certainly go. They will find that the motivation is not sufficient, They will say, anyway I am new, and I will go and try something else.

The first category won’t go out of the profession. They are the Million Dollar Round Table (MDRT) qualifying agents. They are the ones who will shift to doing also Health insurance for instance.

When the commissions are rationalised, excessive attachment to a single product will come down. When the gap is reduced, they will stop choosing.

The second category are cats on the wall. There is a doubt about which way they will go.

Premium: What about a fee based model for remunerating insurance sales? Do you think that can be established in India?

S S Gopalarathnam: There won’t be any motivation to sell. As for the customer paying a fee to the agent, the opposite is happening, rebating is going on! But at least there are many entrenched agents who don’t rebate.

If the first year commission on a policy is Rs 8,000 and someone rebates up to 50 per cent, he may feel that Rs 4,000 is good enough for selling the policy. But if that is reduced to Rs 250 or 300 fees…..

First of all the Indian customer will not pay unless he is forced to pay, he is very price sensitive. If the option is given to customer, he will not pay. If it is built into the product he will go along with it. That is why IRDA is so keen on maintaining the commission system.

In mutual funds there is a felt need to buy the product. The thinking is, ‘if I put Rs 1 lakh I get 10 per cent return’.

For most people the reaction to insurance is: ‘let us see if something happens’. At least Life insurance is bought to provide for death, education or marriage. In the case of General insurance it is much worse and it requires quite active selling

Premium: You spoke of cost cutting earlier, and profitability. Is your team more attuned to quality business? Is this at the underwriting stage or is the agent himself cautious?

S S Gopalarathnam: Absolutely. It is an organisation wide effort.

If we had grown at 20 per cent in 2009-10, we would have done Rs 950 crore and should look forward to 20 to 25 per cent profit. But doing all things together is more important at this time. If I want to pick up 50 per cent growth, I can, but I have to throw all caution to the winds.

We communicate about these priorities within the organisation. We have an annual business meet where we evolve a theme for the next year and convey it to our top 80 or 90 people. Even through difficult times, we had the business meet while many companies have stopped communicating.

Last year’s theme was ‘Profitable Growth’. Growth was there but profitability was really under strain as we were affected by Group Health claims.

This year, in the first two months, we have already made around Rs 2 crore profit. In April there was negative growth but May 2010 growth was around 20 per cent when we did Rs 75 crore over a base of around Rs 60 crore last year.

This year’s theme is Profitable Growth version 2. We are looking at what new things we have to do to drive profitability.

Premium: In 2009-10, the third year of detariffing, you were expecting that not much premium discounting would be done. But it did happen. How do you see it?

S S Gopalarathnam: I will tell you Chola’s data. In 2008-09 we decided that we should cap discounts because we realised that this cannot go on like this. In Motor our average discount was only 31 per cent in 2009-10. This year we are targetting 25 per cent.

In Fire, our April 1, 2010 renewals of commercial lines amounted to a discount of only 63 per cent. There are customers who are willing to pay because it is not in their own interest to aim only for lower and lower premiums because claims will happen and then the insurance companies should be in a position to pay the claims.

Premium: And the claims have begun this year. There have been a series of Fire accidents and claims. If these had happened in the first two years of detariffing the industry would have been in trouble!

S S Gopalarathnam: Claims will continue to happen. If these Fires had taken place earlier everyone would have faced problems, but everyone would have woken up earlier!

It is a matter of selecting the right type of customers and going after them.

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“LeaveAgency Licensing to Us”

Administrator — Sun, 13 Jun 2010 18:00:11 +0000

“LeaveAgency Licensing to Us”

Mr M Ramadoss has earned a name for being outspoken and strong in his arguments in a public sector atmosphere.

A direct recruit officer of The New India Assurance Company from the 1976 specialist batch of Accountants, Mr Ramadoss, a Chartered Accountant, headed Oriental Insurance Company as its Chairman-cum-Managing Director (CMD) for five years until December 2009.

In late December he returned to his parent company, New India, to take over as its CMD. He has four years here to achieve his plans till he retires in December 2013.

A large part of his strategy is to use individual agents - the most cost effective distribution method, as he puts it – to the maximum. There are triumphs and disappointments in this path, as he has seen, but he is putting things in place for New India to nurture and celebrate its agents, unlike in the past.

In this interview with K Nitya Kalyani of Premium, Mr Ramadoss speaks of the difficulties, real and perceived, of General insurance agency and how it can be made a lucrative business.

Excerpts:

Premium: It is three years since detariffing and, after five years of heading Oriental Insurance Company you have returned to home ground, heading your old company, The New India Assurance Company.

What are the priorities on the sales side that you have in New India?

Mr M Ramadoss: In New India, we as a company are encouraging agents now.

Why are agents not coming to General insurance? Renewal chances are there, there is renewal commission. The commission is not as high as Life insurance – this may be one aspect. But still I feel they can do a good job because they do have a reach. Especially those who are doing Life can easily sell General insurance. It is more a phobia and mental block.

Postal Life Insurance agents, Life insurance agents and Public Provident Fund (PPF) agents are most suited for selling General insurance.

So for enticing Life insurance agents to do General insurance combi-products may be the way. Now that IRDA has permitted combi-products, probably it will encourage them to sell Health insurance as a means of selling some Life policies also.

Premium: One reason they give is that the commission rate is not as attractive as in Life insurance. General insurance gives a maximum of 15 per cent while Life insurance gives a higher first year commission and trail commissions. What arguments does the General insurance industry have to counter that?

Mr M Ramadoss: Now that Health policy premium rates are higher that should make the commission attractive to them, according to me. The only thing is that in Motor insurance the premium discounts do affect their morale also.

But beyond that I think that for an agent the only aim should be volume. The more business he does, the more he will be able to earn. He should not be bothered about the rate of commission as such. In General insurance I know agents and development officers who are retaining their clients throughout. The clients don’t leave the agent even if a competitor is offering lower premium rates because of the service they get.

Once any agent takes this as a whole time exercise and, instead of doing only Life he starts doing General, I would say that he will find that General insurance has wider scope than Life insurance. In General you can cover everything.

Premium: What is New India doing to use this channel?

Mr M Ramadoss: In New India we have an agents corner in every office. We have exclusive officers to look after agents called Agency Managers and the Agents Performance Enhancement Programme (APEP). Now the company is recognising that agents are important.

Premium: You tried these things in Oriental over the last five years and New India has been going through something similar that you are now expanding. Yet you say that the interest in General insurance agency is not growing. Why?

Mr M Ramadoss: We have met with success but not on the scale we wanted. Where we wanted to employ 100 agents per branch we were able to do only 10 per branch. The scale that we wanted is just not happening. There are certain hiccups. People say that candidates are not able to pass the exam. Entry barriers are more now.

Premium: There have been complaints that the pass percentage in agents licensing examinations has been going down. Have you been facing that too?

Mr M Ramadoss: The pass percentage has gone down; yes some people are saying that. They are making online examinations compulsory as examination centres are not available in certain areas now. But our people want the written option also to be made available. People want vernacular language examination option to be available.

Premium: What is the way out?

Mr M Ramadoss: I would say agency appointment should be left to companies.

Insurance Regulatory and Development Authority (IRDA) need not create entry barriers for agents. It is the companies that will train them according to their ability and according to the product knowledge required for selling specific policies.

If at all misselling takes place it is the responsibility of the principal company. So, in the name of avoiding misselling you are putting more restrictions and regulations on the agents, which need not be there. And if the company is okay with a particular type of agent, leave it to them to decide.

Premium: Agency licensing used to be with GIC and LIC before reforms…

Mr M Ramadoss: Yes and before that it used to be with the Controller of Insurance. At that time there was no qualification, no examination passing. Just apply with Rs 15 and there was a registration process.

Suppose we appoint anybody as agents, let us assume I appoint all kirana shops as agents or all the ice-cream sellers as agents, how does it matter to you? Because, according to me, my company, the principal company, is responsible anyway.

The Govardhan Committee on distribution channels also recommended it.

IRDA, in March this year, set up six committees to review its regulations with reference to Insurance Laws (Amendment) Bill 2008 which proposes that the powers pertaining to intermediaries be shifted from the Parliament (as per the The Insurance Act), to IRDA.

One of the committees looks into intermediaries, commissions, rural and social sector obligations, policy protection, solatium fund, ombudsman and grievances. I am on that committee and we are also recommending the same thing.

Premium: So back to the question, why do agents shy away from General insurance agency, maybe because the policies are small and commission incomes are small?

Mr M Ramadoss: Only in rural insurance policies are small. Even if you sell Householders or Health insurance you can easily get Rs 200 or 300 commission.

Premium: But in Life insurance the First Year Commission income – which has now become famous – can be up to 40 per cent. It is much more attractive in theory to do Life insurance business. And renewal commission is there too for a few years…

Mr M Ramadoss: In fact there is a big debate going on in the Life insurance industry and the question they are asking is, why should you front load the commission?

Premium: You mean as an offshoot of the Swarup committee recommendations?

Mr M Ramadoss: Yes and even on this committee to review IRDA regulations they are discussing the high first year commission for Life insurance as a problem because it is encouraging lapsation.

There is a specific design on the part of agents to encourage lapsations by shifting policies from one company to another only to earn more and more first year commission. This is creating madness in the industry and that is the very reason why we should not front load the commission .

I would say that commission should be evened out over the term of the policy or only 10 per cent more commission should be given in the first year.

Premium: Evened out as in the case of rural agents?

Mr M Ramadoss: Yes. So once that comes perhaps General insurance will look equally attractive.

Once you are allowing Life companies to do Health insurance, the commission structure should also be the same. If at all there is a portability of Health insurance policy, which IRDA is thinking about now, it should not just be among General insurance companies but between Life and General companies too.

Premium: isn’t that a bit forward thinking? Right now the Life companies are only giving benefit policies and General insurance companies are issuing indemnity policies….

Mr M Ramadoss: Yes today it is true. Health insurance policies by Life insurance companies turned out to be a still born baby and the matter has been going back and forth.

But if we come out with an indemnity policy and so can the Life companies, then make it a portable policy. Why only restrict it to General, make it common to both.

Premium: The third reason why agents say they shy away from General insurance agency is that the customer service levels of General insurance companies is poor. This gives the agents a bad name with the customer and they worry about losing their Life insurance customer in the bargain.

Mr M Ramadoss: I am aware – but nowadays customer service is improving. We are monitoring claims servicing seriously. Turnaround time of claims settlement is being monitored.

Once we have a good information technology system, policy delivery will also be good. The agent will also have a policy centre on the website from where he can download the policy.

Previously, there were complaints of commission delay, now it is not there. Companies are also pulling out all stops to improve service. One big problem that used to be there was lack of an IT backbone. Now, with our new IT system, we are creating that backbone.

Premium: The old Genisys system – the first IT system of the company – is being abandoned?

Mr M Ramadoss: Genisys modules are being thrown away one by one. Motor insurance has already been shifted. Health and other products are moving to the new platform. By the end of this financial year we will be completely on the new system.

Premium: Detariffing and the drop in premium rates and premium income have caused a lot of morale loss in the General insurance industry. Agents ask us questions like, “is it a business worth continuing in?” What they used to get from companies as commission is now given by the customers to companies as premium!

Mr M Ramadoss: It will initially be like that. But once the market stabilises, the premium will grow. It is three years since detariffing now. Business is picking up. Two years ago Oriental’s Fire premium growth was minus. Last year it was positive.

March 2010 ended with a 20 per cent Fire premium growth for New India. Rates are picking up and it will stabilise.

Thanks to the reinsurers’ insistence, including General Insurance Corporation of India (GIC) they put a lot of conditions to stabilise the rates. So we should not fear the initial reaction…

Premium: What advice would you give to the General insurance agent depressed by the market changes?

Mr M Ramadoss: He has to expand, deal with more clients. If I am dealing with 100 clients now, I must aim to deal with 200 clients. There is so much to be done. General insurance is a huge unexplored market. Camp in every condominium and there are policies to be sold. I don’t think they should be dejected. This is more to do with the mind than action.

Today, everyone who is selling something is creating a livelihood. Why not insurance?

You can sell anything and make money including paperback editions of novels and books.

One simple thing is, according to statistics, more than 60 per cent of two wheelers are uninsured. Have a tie up with the policeman who is checking the validity of insurance. Have an agent standing there and go on issuing cover notes! We in fact did it once!

Premium: Or you could make Regional Transport Offices your corporate agents!

Mr M Ramadoss: There are some agents attached to RTOs who also are General Insurance agents. But they get business only if the customer comes in for some work with the RTO. How to attract the renewal of insurance of two wheelers is the question as they don’t come for renewal.

Premium: So how do you do it? It is a fragmented market, how to aggregate it?

Mr M Ramadoss: At the outlets of the retail chain Reliance Fresh, which acts as an insurance intermediary, you can renew your Motor policy. They charge Rs 100 extra; a person comes and takes an impression of your vehicle’s engine number and chassis number so that physical verification is ensured before renewal.

Premium: So you say there is good potential?

Mr M Ramadoss: Enormous

Premium: What are you doing to make it happen?

Mr M Ramadoss: We are doing our best to have specific officers assigned to this job of recruiting and developing agents. In each branch we have an Agency Manager. His job is only to look after agents. Today, the agent seems orphaned in the office. Nobody attends to him. Each one does his own job.

Premium: Isn’t that what the development officer is supposed to do?

Mr M Ramadoss: We are talking of direct agents. Whoever is recruited directly, we are attaching them to the Agency Manager.

When I was in Oriental, I took it up with missionary zeal to recruit. According to me this is the cheapest method of distribution. We can even increase premium and then ask the people to sell – they will be glad to sell. They get more commission.

Unfortunately everyone is going for bulk distribution through channels like dealers, financiers, banks and so on and they are all anti-individual agents.

Premium: Apart from commissions the agents look forward to so many other things, recognition, training….

Mr M Ramadoss: We are also promoting agents in a big way. We just did a convention in Hyderabad for the CMD club members where we gave them laptops to help them track their business efficiently. This is the second year of the Club.

We plan this year’s convention in Goa… We are having an agent’s convention in every state.

Premium: What is New India’s experience with bancassurance?

Mr M Ramadoss: We have three tie ups and we get Rs 300 crore premium through them.

Premium: Commercial lines, where the banks have lent to the industries?

Mr M Ramadoss: No, retail business – personal lines. It is profitable business. But I would say that it has not been tapped very well. The potential is much more. Unfortunately unless there is a commission, people do not go and sell.

In bancassurance and auto-dealer tie-ups, servicing is a casualty. The people employed there take it lightly.

Premium: But New India has a large part of the dealer business and claims are handled as part of it….

Mr M Ramadoss: But that again is only through Maruti. They have a separate IT system. That’s the only solution – to have a good IT backbone. Create a web-based portal through which the dealer can download the policy. He has to depend on us for claims only.

In claims again, if you make it cashless and make it as easy as possible, it should work. That is why we are putting a lot of emphasis on getting the software in place.

Premium: What is the trend in premium rates now that it is three years since detariffing?

Mr M Ramadoss: Fire and Engineering business had big discounts earlier. Engineering discounts have stabilised at 50 per cent. Fire used to be discounted up to 90 per cent, now it is 70 to 75 per cent for large business.

Another important factor that is bleeding the industry is Group Health insurance. Here

Policy pricing stability has taken place, that is, the premium rates have stabilised and are not falling further.

No insurance company is interested in the big volumes, nobody is chasing topline now. People are shunning away from loss making policies.

Premium: But employers are under pressure. Once they have given a benefit like Health insurance they cannot take it away. So how are they reacting?

Mr M Ramadoss: They have to pay proper premium. Among the insurance companies there are no takers at lower premium. New companies cannot afford to quote low premium so the rogue quoting is coming down. Not eradicated, but coming down. Hopefully everybody understands that.

Premium: When detariffing was going to be implemented, private companies which had been cornering the commercial lines business – the industrial insurance of large companies – by giving illegal discounts, changed their strategy. They stopped concentrating on that segment and started focusing on personal lines.

Until then the public sector companies had lost their market share in commercial lines and, once detariffing started, they moved more and more to regain their lost customers by giving the low premium rates in the absence of a tariff.

Was this the correct strategic decision of both the sectors?

Mr M Ramadoss: Public sector strength is the strength of their balance sheet. A company like New India can underwrite Rs 3,000 to Rs 4,000 crore Fire risks without reinsurance support. Fire traditionally has been the big business and we are able to retain bigger risks after detariffing with our financial strength. We have to use that muscle and regain the original situation when only PSUs were able to write the big policies of the Tatas and Birlas.

Initially some clients went to private companies who gave them discounts in breach of the tariff to get the business –the business was purchased another thing is that the private insurance companies were wary of claims. You were dropped like a hot potato if you had a big claim.

The general trend in the last two years has been that bigger companies prefer to have PSUs as sole insurers or lead insurers. This has been the invariable response I am getting from bigger companies.

Premium: But that preference comes only with the rate cuts being given still by PSUs.

Mr M Ramadoss: It was happening with rate cuts – but the rates are also stabilising. We are discounting less because we are also being pulled up by the Finance Ministry for underwriting losses. Each public sector insurance company has a statement of intent with the Finance Ministry and it is incentive based and that too for employees.

In the last year 2009-10 itself, we had a group incentive scheme for officers. If they achieved a set of parameters, the top 25 achievers were to get incentives. Three per cent of profits after tax were allocated for distribution and New India is likely to make about Rs 600 crore profit in 2009-10 Last year it was Rs 440 crore including investment income.

Premium: What was your underwriting loss last year?

Mr M Ramadoss: Rs 1,600 crore was the underwriting loss last year. That will come down substantially this year; we expect it to be less than Rs 1,000 crore or so.

Premium: How has the year been for New India? And the April renewals?

Mr M Ramadoss: April renewals were very good for New India. In 2009-10 we crossed Rs 6,000 crore domestic premium and earned another Rs 1,175 as foreign premium.

Premium: What are your plans for New India?

Mr M Ramadoss: We have not had enough focus on foreign operations. This has to be leveraged. I would like to ensure this is done.

We are coming out with novel policies. We gave a single policy for the entire Aditya Birla group, covering all their plants anywhere in India at Rs 100 crore plus premium.

For Suzlon we gave a single policy that covers construction on any of their locations/sites anywhere in the world.

Premium: Speaking of underwriting losses, what is the status of the India Motor Third Party Insurance Pool (IMTPIP), the Motor Pool? There has been a recent circular further loosening up the pool arrangement.

Mr M Ramadoss: Originally the premium and claims were to be with the pool. Then they cut back on the second part. The companies had to fight with IRDA which finally agreed that money collected from companies can be given back to them. From now on there will only be a quarterly settlement of dues between the companies, netting out the claims each one has to pay.

Premium: What was the purpose of this move?

Mr M Ramadoss: The companies got back their cash flow through the Motor premium collection that they had to give away to the pool until now. It makes a big difference, especially to the PSUs. The private companies are not writing much commercial vehicle Third Party insurance.

PSUs had a legacy of previous claims. Claims from earlier policies started coming in and we did not have the cash flow to pay it. There was a time lag and we were unnecessarily losing the money. From the point of view of cash flow problems, this was a bad arrangement.

Premium: Today what purpose does the pool serve?

Mr M Ramadoss: The purpose of the pool, that all companies have to bear commercial vehicle Third Party Liability losses in proportion of their market share, is being served.

The pool has established statistically that the loss was high. Earlier there was an allegation that PSUs were inefficient so losses are high. Under the pool also losses are there.

But the lorry owners association was not convinced. They said, “Why don’t you share the Own Damage (OD) losses also.” I don’t know why we should!

The OD portfolio, despite 30 to 40 per cent discount has a loss ratio of 60 to 65 per cent only. PSU loss ratios have come down as it is shared by others.

Premium: So what is the future of Motor insurance? What is a good solution?

Mr M Ramadoss: The ideal solution is detariffing.

Premium: Overnight?

Mr M Ramadoss: Why not? Better go ahead, no? How can the regulator insist on companies doing a business which is patently loss making? How can he insist?

You have to give me the opportunity of choosing my premium. I am in a commercial business, I have to make profits.

He says, nothing doing, you make losses and then comply with my solvency margin also! If we have to do this business, then exclude this from the solvency margin.

We have told the regulator a thousand times . I am making comments in public, I am making comments in the press, I have told them openly also.

Premium: What is the situation on that now?

Mr M Ramadoss: IRDA has nicely asked us to take up the job of convincing the transporters association, it is a difficult job! We have been talking to them. The pool was created so that no one would deny cover. But it is not the solution. It is only a temporary solution.

Under the pool, I have to bear the total claim in proportion to my overall business, whether or not i issued that many policies. So today, I am forced to accept the loss ratio of other companies; I have to do it because you are unable to increase rates.

Where is the need for subsidy? Are the transporters bleeding? When tyre prices are raised is there a tariff? We demonstrated in every meeting that insurance premium was not a major cost for lorry owners and that increase in premium was justified. There seems to be no logic.

All along you are pushing us because public sector is Government owned. But today there are private companies and they cannot be forced to lose money, they will resist.

Earlier the charge was that PSUs were inefficient and were making a loss. Now everybody is making a loss. If some company is more efficient let them take the pool over and run it. Let them charge more too, show their efficiency and make more money. If it is profitable then let the transporters start a company!

They know pretty well that at this rate, profits are not sustainable. That is why they are not coming forward.

Premium: In the last few months there have been a sudden string of big fire losses. This possibility was worrying everyone during the steep premium rate cutting of the last three years following detariffing….

Mr M Ramadoss: Yes medium sized companies were having big fire losses and in the Fire department, our net account has been affected.

The Jaipur fire… Haldia fire was a big one, Gokaldas, Bangalore had a serious fire accident. We have been lucky to avoid such losses in the last three years.

It can happen any time. Unfortunately if you go on discounting every case, medium or large, then you land up in a problem. What is important is to look at the size of the client and then decide the price.

Somebody has to take a call and say this is the rate I can give you, not less than that. Once this is done, the market will stop premium rate cutting.

Premium: Accident losses can also force the market to become sober ….

Mr M Ramadoss: I hope so.

Premium: What is occupying you as head of General Insurance Public Sector Association (GIPSA)?

Mr M Ramadoss: The wage negotiation is going on. We have made the offer. They are all waiting for the sequence. The banks are likely to finalise this year, then LIC and then GIC.

Premium: What are the plans for a single Third Party Administrator (Health Services) – TPA – for the four public sector insurance companies put together?

Mr M Ramadoss: A separate company is being formed for that. A consultant is working on the best structure for it. Instead of each company having its own TPA or many TPAs, if we all had one common company we will have better bargaining power.

The idea is that it will be independent and not have people on transfer or deputation. There will be meritorious selection of staffers and they will get market related salaries. We are planning it on the model of SBI Life Insurance Company which is a subsidiary of a public sector but operates like the private sector in terms of structure and culture.

M Ramadoss, Chairman cum Managing Director, The New India Assurance Company, Mumbai

Mr M Ramadoss has earned a name for being outspoken and strong in his arguments in a public sector atmosphere.

In late December he returned to his parent company, New India, to take over as its CMD. He has four years here to achieve his plans till he retires in December 2013.

In this interview with K Nitya Kalyani of Premium, Mr Ramadoss speaks of the difficulties, real and perceived, of General insurance agency and how it can be made a lucrative business.

Excerpts:

Premium: It is three years since detariffing and, after five years of heading Oriental Insurance Company you have returned to home ground, heading your old company, The New India Assurance Company.

What are the priorities on the sales side that you have in New India?

Mr M Ramadoss: In New India, we as a company are encouraging agents now.

Postal Life Insurance agents, Life insurance agents and Public Provident Fund (PPF) agents are most suited for selling General insurance.

Premium: One reason they give is that the commission rate is not as attractive as in Life insurance. General insurance gives a maximum of 15 per cent while Life insurance gives a higher first year commission and trail commissions. What arguments does the General insurance industry have to counter that?

Mr M Ramadoss: Now that Health policy premium rates are higher that should make the commission attractive to them, according to me. The only thing is that in Motor insurance the premium discounts do affect their morale also.

Premium: What is New India doing to use this channel?

Mr M Ramadoss: In New India we have an agents corner in every office. We have exclusive officers to look after agents called Agency Managers and the Agents Performance Enhancement Programme (APEP). Now the company is recognising that agents are important.

Premium: You tried these things in Oriental over the last five years and New India has been going through something similar that you are now expanding. Yet you say that the interest in General insurance agency is not growing. Why?

Mr M Ramadoss: We have met with success but not on the scale we wanted. Where we wanted to employ 100 agents per branch we were able to do only 10 per branch. The scale that we wanted is just not happening. There are certain hiccups. People say that candidates are not able to pass the exam. Entry barriers are more now.

Premium: There have been complaints that the pass percentage in agents licensing examinations has been going down. Have you been facing that too?

Mr M Ramadoss: The pass percentage has gone down; yes some people are saying that. They are making online examinations compulsory as examination centres are not available in certain areas now. But our people want the written option also to be made available. People want vernacular language examination option to be available.

Premium: What is the way out?

Mr M Ramadoss: I would say agency appointment should be left to companies.

Premium: Agency licensing used to be with GIC and LIC before reforms…

Mr M Ramadoss: Yes and before that it used to be with the Controller of Insurance. At that time there was no qualification, no examination passing. Just apply with Rs 15 and there was a registration process.

The Govardhan Committee on distribution channels also recommended it.

Premium: So back to the question, why do agents shy away from General insurance agency, maybe because the policies are small and commission incomes are small?

Mr M Ramadoss: Only in rural insurance policies are small. Even if you sell Householders or Health insurance you can easily get Rs 200 or 300 commission.

Premium: But in Life insurance the First Year Commission income – which has now become famous – can be up to 40 per cent. It is much more attractive in theory to do Life insurance business. And renewal commission is there too for a few years…

Mr M Ramadoss: In fact there is a big debate going on in the Life insurance industry and the question they are asking is, why should you front load the commission?

Premium: You mean as an offshoot of the Swarup committee recommendations?

Mr M Ramadoss: Yes and even on this committee to review IRDA regulations they are discussing the high first year commission for Life insurance as a problem because it is encouraging lapsation.

I would say that commission should be evened out over the term of the policy or only 10 per cent more commission should be given in the first year.

Premium: Evened out as in the case of rural agents?

Mr M Ramadoss: Yes. So once that comes perhaps General insurance will look equally attractive.

Premium: isn’t that a bit forward thinking? Right now the Life companies are only giving benefit policies and General insurance companies are issuing indemnity policies….

Mr M Ramadoss: Yes today it is true. Health insurance policies by Life insurance companies turned out to be a still born baby and the matter has been going back and forth.

But if we come out with an indemnity policy and so can the Life companies, then make it a portable policy. Why only restrict it to General, make it common to both.

Premium: The third reason why agents say they shy away from General insurance agency is that the customer service levels of General insurance companies is poor. This gives the agents a bad name with the customer and they worry about losing their Life insurance customer in the bargain.

Mr M Ramadoss: I am aware – but nowadays customer service is improving. We are monitoring claims servicing seriously. Turnaround time of claims settlement is being monitored.

Once we have a good information technology system, policy delivery will also be good. The agent will also have a policy centre on the website from where he can download the policy.

Premium: The old Genisys system – the first IT system of the company – is being abandoned?

Mr M Ramadoss: Genisys modules are being thrown away one by one. Motor insurance has already been shifted. Health and other products are moving to the new platform. By the end of this financial year we will be completely on the new system.

Mr M Ramadoss: It will initially be like that. But once the market stabilises, the premium will grow. It is three years since detariffing now. Business is picking up. Two years ago Oriental’s Fire premium growth was minus. Last year it was positive.

March 2010 ended with a 20 per cent Fire premium growth for New India. Rates are picking up and it will stabilise.

Thanks to the reinsurers’ insistence, including General Insurance Corporation of India (GIC) they put a lot of conditions to stabilise the rates. So we should not fear the initial reaction…

Premium: What advice would you give to the General insurance agent depressed by the market changes?

Mr M Ramadoss: He has to expand, deal with more clients. If I am dealing with 100 clients now, I must aim to deal with 200 clients. There is so much to be done. General insurance is a huge unexplored market. Camp in every condominium and there are policies to be sold. I don’t think they should be dejected. This is more to do with the mind than action.

Today, everyone who is selling something is creating a livelihood. Why not insurance?

You can sell anything and make money including paperback editions of novels and books.

Premium: Or you could make Regional Transport Offices your corporate agents!

Mr M Ramadoss: There are some agents attached to RTOs who also are General Insurance agents. But they get business only if the customer comes in for some work with the RTO. How to attract the renewal of insurance of two wheelers is the question as they don’t come for renewal.

Premium: So how do you do it? It is a fragmented market, how to aggregate it?

Mr M Ramadoss: At the outlets of the retail chain Reliance Fresh, which acts as an insurance intermediary, you can renew your Motor policy. They charge Rs 100 extra; a person comes and takes an impression of your vehicle’s engine number and chassis number so that physical verification is ensured before renewal.

Premium: So you say there is good potential?

Mr M Ramadoss: Enormous

Premium: What are you doing to make it happen?

Mr M Ramadoss: We are doing our best to have specific officers assigned to this job of recruiting and developing agents. In each branch we have an Agency Manager. His job is only to look after agents. Today, the agent seems orphaned in the office. Nobody attends to him. Each one does his own job.

Premium: Isn’t that what the development officer is supposed to do?

Mr M Ramadoss: We are talking of direct agents. Whoever is recruited directly, we are attaching them to the Agency Manager.

Unfortunately everyone is going for bulk distribution through channels like dealers, financiers, banks and so on and they are all anti-individual agents.

Premium: Apart from commissions the agents look forward to so many other things, recognition, training….

Mr M Ramadoss: We are also promoting agents in a big way. We just did a convention in Hyderabad for the CMD club members where we gave them laptops to help them track their business efficiently. This is the second year of the Club.

We plan this year’s convention in Goa… We are having an agent’s convention in every state.

Premium: What is New India’s experience with bancassurance?

Mr M Ramadoss: We have three tie ups and we get Rs 300 crore premium through them.

Premium: Commercial lines, where the banks have lent to the industries?

Mr M Ramadoss: No, retail business – personal lines. It is profitable business. But I would say that it has not been tapped very well. The potential is much more. Unfortunately unless there is a commission, people do not go and sell.

In bancassurance and auto-dealer tie-ups, servicing is a casualty. The people employed there take it lightly.

Premium: But New India has a large part of the dealer business and claims are handled as part of it….

Mr M Ramadoss: But that again is only through Maruti. They have a separate IT system. That’s the only solution – to have a good IT backbone. Create a web-based portal through which the dealer can download the policy. He has to depend on us for claims only.

In claims again, if you make it cashless and make it as easy as possible, it should work. That is why we are putting a lot of emphasis on getting the software in place.

Premium: What is the trend in premium rates now that it is three years since detariffing?

Mr M Ramadoss: Fire and Engineering business had big discounts earlier. Engineering discounts have stabilised at 50 per cent. Fire used to be discounted up to 90 per cent, now it is 70 to 75 per cent for large business.

Another important factor that is bleeding the industry is Group Health insurance. Here

Policy pricing stability has taken place, that is, the premium rates have stabilised and are not falling further.

No insurance company is interested in the big volumes, nobody is chasing topline now. People are shunning away from loss making policies.

Premium: But employers are under pressure. Once they have given a benefit like Health insurance they cannot take it away. So how are they reacting?

Mr M Ramadoss: They have to pay proper premium. Among the insurance companies there are no takers at lower premium. New companies cannot afford to quote low premium so the rogue quoting is coming down. Not eradicated, but coming down. Hopefully everybody understands that.

Premium: When detariffing was going to be implemented, private companies which had been cornering the commercial lines business – the industrial insurance of large companies – by giving illegal discounts, changed their strategy. They stopped concentrating on that segment and started focusing on personal lines.

Was this the correct strategic decision of both the sectors?

Mr M Ramadoss: Public sector strength is the strength of their balance sheet. A company like New India can underwrite Rs 3,000 to Rs 4,000 crore Fire risks without reinsurance support. Fire traditionally has been the big business and we are able to retain bigger risks after detariffing with our financial strength. We have to use that muscle and regain the original situation when only PSUs were able to write the big policies of the Tatas and Birlas.

The general trend in the last two years has been that bigger companies prefer to have PSUs as sole insurers or lead insurers. This has been the invariable response I am getting from bigger companies.

Premium: But that preference comes only with the rate cuts being given still by PSUs.

Mr M Ramadoss: It was happening with rate cuts – but the rates are also stabilising. We are discounting less because we are also being pulled up by the Finance Ministry for underwriting losses. Each public sector insurance company has a statement of intent with the Finance Ministry and it is incentive based and that too for employees.

Premium: What was your underwriting loss last year?

Mr M Ramadoss: Rs 1,600 crore was the underwriting loss last year. That will come down substantially this year; we expect it to be less than Rs 1,000 crore or so.

Premium: How has the year been for New India? And the April renewals?

Mr M Ramadoss: April renewals were very good for New India. In 2009-10 we crossed Rs 6,000 crore domestic premium and earned another Rs 1,175 as foreign premium.

Premium: What are your plans for New India?

Mr M Ramadoss: We have not had enough focus on foreign operations. This has to be leveraged. I would like to ensure this is done.

We are coming out with novel policies. We gave a single policy for the entire Aditya Birla group, covering all their plants anywhere in India at Rs 100 crore plus premium.

For Suzlon we gave a single policy that covers construction on any of their locations/sites anywhere in the world.

Premium: Speaking of underwriting losses, what is the status of the India Motor Third Party Insurance Pool (IMTPIP), the Motor Pool? There has been a recent circular further loosening up the pool arrangement.

Mr M Ramadoss: Originally the premium and claims were to be with the pool. Then they cut back on the second part. The companies had to fight with IRDA which finally agreed that money collected from companies can be given back to them. From now on there will only be a quarterly settlement of dues between the companies, netting out the claims each one has to pay.

Premium: What was the purpose of this move?

Mr M Ramadoss: The companies got back their cash flow through the Motor premium collection that they had to give away to the pool until now. It makes a big difference, especially to the PSUs. The private companies are not writing much commercial vehicle Third Party insurance.

Premium: Today what purpose does the pool serve?

Mr M Ramadoss: The purpose of the pool, that all companies have to bear commercial vehicle Third Party Liability losses in proportion of their market share, is being served.

The pool has established statistically that the loss was high. Earlier there was an allegation that PSUs were inefficient so losses are high. Under the pool also losses are there.

But the lorry owners association was not convinced. They said, “Why don’t you share the Own Damage (OD) losses also.” I don’t know why we should!

The OD portfolio, despite 30 to 40 per cent discount has a loss ratio of 60 to 65 per cent only. PSU loss ratios have come down as it is shared by others.

Premium: So what is the future of Motor insurance? What is a good solution?

Mr M Ramadoss: The ideal solution is detariffing.

Premium: Overnight?

Mr M Ramadoss: Why not? Better go ahead, no? How can the regulator insist on companies doing a business which is patently loss making? How can he insist?

You have to give me the opportunity of choosing my premium. I am in a commercial business, I have to make profits.

He says, nothing doing, you make losses and then comply with my solvency margin also! If we have to do this business, then exclude this from the solvency margin.

We have told the regulator a thousand times . I am making comments in public, I am making comments in the press, I have told them openly also.

Premium: What is the situation on that now?

Mr M Ramadoss: IRDA has nicely asked us to take up the job of convincing the transporters association, it is a difficult job! We have been talking to them. The pool was created so that no one would deny cover. But it is not the solution. It is only a temporary solution.

All along you are pushing us because public sector is Government owned. But today there are private companies and they cannot be forced to lose money, they will resist.

They know pretty well that at this rate, profits are not sustainable. That is why they are not coming forward.

Premium: In the last few months there have been a sudden string of big fire losses. This possibility was worrying everyone during the steep premium rate cutting of the last three years following detariffing….

Mr M Ramadoss: Yes medium sized companies were having big fire losses and in the Fire department, our net account has been affected.

The Jaipur fire… Haldia fire was a big one, Gokaldas, Bangalore had a serious fire accident. We have been lucky to avoid such losses in the last three years.

Somebody has to take a call and say this is the rate I can give you, not less than that. Once this is done, the market will stop premium rate cutting.

Premium: Accident losses can also force the market to become sober ….

Mr M Ramadoss: I hope so.

Premium: What is occupying you as head of General Insurance Public Sector Association (GIPSA)?

Mr M Ramadoss: The wage negotiation is going on. We have made the offer. They are all waiting for the sequence. The banks are likely to finalise this year, then LIC and then GIC.

Premium: What are the plans for a single Third Party Administrator (Health Services) – TPA – for the four public sector insurance companies put together?

Mr M Ramadoss: A separate company is being formed for that. A consultant is working on the best structure for it. Instead of each company having its own TPA or many TPAs, if we all had one common company we will have better bargaining power.

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