Insurers have to make underwriting profits grow: SBI General's Mahapatra

He says the company is on top of property insurance and is proud of claim settlements

Among general insurance companies, SBI General has had a good run in the September quarter. Its net profit rose by a massive Rs 251 crore. Managing Director and Chief Executive Officer PUSHAN MAHAPATRA says there are plans for a public issue, but he is also careful to point out the risks for the insurance companies in rushing to the market. Excerpts from an interview with Subhomoy Bhattacharjee:

What are your thoughts on initial public offerings (IPOs) of insurance firms?

We expect a growth of about 40 per cent in gross premium to Rs 3,600 crore this financial year. Yes, we are exploring an IPO in the medium term. Yet, I would say that insurance companies have to make underwriting profits to grow on a sustained basis. In the first instance, you might still get investors who will pick up your issue if you make net profits. But five years down the line when everyone shows the same sort of numbers they will become more choosy.

What do you claim as your strengths?

In property insurance, we are right at the top — in terms of coverage, of capacity, and spread. We are proud of our record in claims settlement, since we aim to get back the insured’s cash flow as soon as possible — being too late does not help the insured at all. Our other strength is our countrywide distribution network. Others have pools where they are strong. Also, our 2,600-strong employee pool. We also aim to sharply raise the number of agents. 

Talking of agents there has been lot of questions on how the industry instead guns for business mostly through motor dealers.

It is in everybody’s interest to conform to the guidelines set by the GIC Council. These come into effect from November. I agree the issue of excess commission arose because companies were trying to build market share. That was sort of a way to grow. Motor as a product is the largest; we cannot wish it away.

Yes, channels (operating through dealers) are very good. But, as I said, the new guidelines have been brought in a platform that makes what was totally unregulated now totally regulated.

Does motor issuance need to move out from the shops of the dealers?

One way is to go direct and digital. It is already coming but will take time to evolve. With the guidelines, the options reduce themselves to handling the dealer partners as brokerage or as an agency depending on whether it is a bilateral or a multilateral partnership with the insurance companies. You must also recognise that within another 10 years the motor insurance business may not be recognisable as it exists today. With so much of electronics coming into vehicles, it is possible to examine if the insurance needs to be taken out on the driver or the software. If the software malfunctions, you cannot hold the driver responsible. So the business may evolve into part liability insurance and partly the standard driver insurance that we have now. 

So what are the emerging insurance sectors?

You see, Indians by nature were never very security conscious. But gradually over time that is changing. One of the first areas where it took shape was in motor third party. Now it is expanding to the protection of property. I feel the scope of liability insurance will expand both at the retail level and of course for companies. The other new area is artificial intelligence and its implications for manufacturing. Today you have policies with loss of profit, yet tomorrow if there is a software malfunction, who is going to pay for the losses? The company using the robots has not manufactured those, it is someone else. So whose responsibility is it ultimately? These legal guidelines, too, have to emerge with case laws, etc. Companies may not have persons but robots to insure. Here the damage is not of bodily harm to the workers but that of financial loss, through loss of production. It will remain an insurable risk.

What has been your experience of working with the government-mandated insurance covers? 

In the case of crop insurance (Pradhan Mantri Fasal Bima Yojana) we found that it takes time to build up underwriting data. The typical cycle is one good year, two average and two disaster years. Among the two crop cycles, rabi crop gives us more headache. North India often has severe cold or there are thunder storms during harvest. There have been years when loss ratio has gone up 250 per cent. With the data, it is easier to scout for reinsurance support. Crops are a major portfolio globally too, so large reinsurance companies are interested.

One of the challenges in this business is that it is annual. Since reinsurance, too, is available only on a yearly basis that is how the cycle operates. In the first year, we may be able to offer the cover cheap, but as losses mount the reinsurance support could become costly. And that makes it difficult to stick to the same price point with the state. So we do face challenges with some of them on pricing. Then again, many of them are balanced who offer pricing, which is rational and the sampling is fair, so we are comfortable with them.

But on Pradhan Mantri Suraksha Bima Yojana, we do not participate, as we feel the premium offered is low. These schemes have brought in a lot of insurance awareness, though.