Bharti AXA General Insurance India started operations last year. At a time when insurers are forced to be cautious in underwriting business, the company is focusing on the retail segment where prices have dropped substantially. The company’s CEO Milind Chalisgaonkar talks to Shilpy Sinha about the company’s strategy. Excerpts:
Is there an impact of the global turmoil on reinsurance?
Reinsurance is all about using capital to take some risk. If capital is in short supply, then the cost of funds will go up and reinsurers will act pricey. Reinsurers are looking at the performance of an insurance company and its past business. That gives a clear message to all insurers that they cannot continue to make losses. The commission rates have come down by 2-5 per cent.
What can be done to bring down the claims ratio in the fire, health and motor insurance segments?
Post-detariffing, this is inevitable. Detariffing was done so that prices can find their own level. What is happening is a natural corollary of regulation, and this was intended. Either the price will change, or there will be better control on claims, or product features will change.
Are the features changing?
They are changing in group health insurance. There are a number of cases where people have changed the features, rather than changing the price. For instance, if a company has taken a group health cover for its employees which says that up to Rs 2 lakh will be paid per year, they now put a supplement saying that, in case of hospitalisation, you can only go to the hospital which charges up to Rs 2,000 a day. If you don’t have such control, everybody will go to the most expensive hospital. There could be control on cost by controlling your suppliers.
Will add-ons result in more premium collection?
People almost bought motor insurance policy as potatoes. The moment four-five options are available, it becomes a relationship-building interaction rather than just selling a commodity. It will help premium collection in two ways. First, instead of paying a plain vanilla Rs 5,000 for a motor policy, a percentage of customers will be willing to pay more and take more, so the premium collection will be high. Second, the moment a relationship is built, there is an opportunity to cross-sell.
Do in-house third-party administrators (TPAs) help ?
The job of servicing the claim is the responsibility of an insurance company. We have three options. First, you can do everything yourself, including the TPA’s job also, which people call in-house TPA. The second option is to do a part of the job in-house, and partly use a TPA. The third is too outsource everything. We have taken a middle path and appointed two TPAs. We use their presence, their ability to respond to a claim quickly, but do not depend on them to control the claim. Having some of the activities in-house definitely helps. Activities that can be done by a TPA, and which are fairly routine, require a 24X7 call centre or service across the world. But there are certain activities which we need to do, like maintaining a relationship with the insured, doing claim-cost control. If we give away these responsibilities, and they are not done well.
Do you see tough competition from SBI’s general insurance company that will soon enter the market?
They (SBI) are a giant, and they have proved themselves in the life insurance industry. In general insurance industry also, they have the potential to be a big force. The market is growing and everybody is going to have a piece of the pie. Our target segment is largely retail. In the next three-five years, 70-80 per cent of our business will come from retail, which includes motor, health, travel, personal accident – something which an individual requires. We believe that the segment will keep growing because the asset build-up among individuals is high with more people owning cars and houses. The industrial segment, on the other hand, is extremely competitive and, due to detariffing, prices have shrunk.
How much capital do you require at the moment?
We have infused Rs 190 crore so far. As per our business plans, we will require Rs 645 crore in the first five years. It will depend on how much business we write. We need money for two things – funding our expenses on new branches, and to maintain solvency margins. Currently, we have enough capital to fund our business.