In the face of stiff competition from private sector insurance companies, state-owned National Insurance Company has rolled out a corporate plan to revamp its distribution network and implement core insurance solutions. V Ramasaamy, chairman and managing director of National Insurance Company, speaks about detariffing and its impact on public sector insurance companies in an interview with Namrata Acharya. Excerpts:
Last year, National Insurance Company had appointed PricewaterhouseCoopers (PwC) to revamp its operations. What is the outcome?
The PwC has submitted its report and its recommendations have been implemented. We have started taking a number of steps for increasing penetration of the insurance business. We are now implementing the core insurance solutions, something like the core banking solutions. We will be signing an agreement with a vendor shortly for a major IT revamp for the benefit of our customers as well as our internal management.
What are the other recommendations of PwC?
The most important recommendation is with regard to enhancing the distribution network. We are giving more importance to agents. We have identified agents, who can generate more than Rs 50 lakh business a year. We have started conducting zone-wise conference with agents, where we exchange views, inform them about our products and also honour them. This has really given good results, with the number of policy sales increasing. We have tied up with 24 banks to increase penetration of bancassurance.
What would be the cost of implementing the PwC plan?
The expenditure plan is almost in the final stage. We will decide on the final plan in 10-15 days. The project will require huge expenditure, and it will be spread over five to seven years. We will have to invest substantially in the IT network.
What has been the impact of detariffing, especially on state-run insurance companies?
The market share of all public sector insurance companies has come down. Till August 31 this year, the market share of all PSU companies was around 58 per cent, with the private sector eating into the rest of the share. Detariffing has affected fire and, to some extent, the motor portfolio, as the premium has come down.
This is because fire enjoys a discount of 50-60 per cent, while motor insurance too enjoys a discount of 15-20 per cent. As regards motor insurance, the growth rate has not been affected till June because of more sales. But again, the problem has started creeping in because of the financial crisis etc. Probably by December, we will come to know the impact of the premium reduction and slower production.
How has detariffing affected general insurance, especially the profitable portfolios like fire and engineering?
Till detariffing took effect, fire and engineering were really good profitable portfolios. Even now, it is profitable. Before 2007, the claims ratio was in the region of 40 per cent in fire and 60 per cent in engineering. Now after detariffing, the claims ratio has increased because of a fall in prices.
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How has the market downturn affected the investment portfolio of the company?
We have not faced any problems in the equity market as we do not take into account mark-to-market losses in our accountig system. We only count the profit we realise from actual sales in the equity market. When the market is down, as it is these days, we don’t aggressively sell.
The Insurance Regulatory and Development Authority (Irda) has asked insurance companies to bring down equity stake in companies to 10 per cent. How have you realigned your investment portfolio?
We have not been affected to that extent. We have analysed the situation already. We may not have investment to that extent in a single company.
What are the thrust areas for future growth?
Recently, we launched two micro-insurance products, which we are aggressively marketing. We have recruited micro-insurance agents in rural areas and have given them specific targets.
Through this, we will develop an alternative market strategy to penetrate deeper into the nooks and corners of the country. We will also focus on health insurance as the potential there is quite huge. Last year, we registered growth of 46-47 per cent in our health portfolio and this year too, we want to have growth of minimum 30-40 per cent.