 "We believe social inclusion will expand the insurance market: Bhargav Dasgupta")
Private general insurance company ICICI Lombard general Insurance, which has been one of the highest-valued companies in the industry, is now deepening penetration by building independent outreach in rural areas. In an interview with M Saraswathy, ICICI Lombard MD & CEO, Bhargav Dasgupta, talks about this strategy and growth plans. Excerpts:
The industry has been adjusting to a lot many new regulations. Do you see that impacting growth?
The regulatory changes were largely driven by context changes and most of it was positive. The key driver for industry growth is underlying economic growth. If the real Gross Domestic Product (GDP) growth is 7 per cent, then industry will grow 2.5-3 times the growth. Our view is that industry will probably grow plus minus 15 per cent. The new regulations are aimed at opening up of distribution side and will help ease the distribution set-up so as to drive penetration.
Banks have been asked to open up to more insurers. Do you see that happening?
In the past, ICICI Lombard has been active in the government health scheme. Will social insurance schemes continue to be a focus?
We have always kind of tried to play a role in social inclusion segment. This is not just because of the obligation but we believe that this is one way of expanding the insurance market overall as also because genuine social need that is there in that segment. With respect to Pradhan Mantri Fasal Bima Yojana, we have been a large player in crop insurance scheme and will continue to focus on that.
As an insurer, we have been a big player in Rashtriya Swasthya Bima Yojana as well and as and when new structure of the new health scheme comes announced in the Budget comes, we will participate. We are also looking at building outreach in these markets beyond social insurance schemes. It is not easy, because small ticket products have distribution costs to manage. We are focussing on partnering with cooperative banks, seed companies in those regions so that we can enter the market in a manner that is cost effective.
It has been almost a year since long-term policies were launched in motor insurance for two-wheelers. How has the response been?
The regulator allowed long-term motor products with up to three years' duration for two-wheelers. If you look at the two-wheelers segment, the policies are small-ticket. Here, the challenge for industry was to reach out in a cost-effective manner given that ticket size was very small. For customers, it was bit of a supply issue because nobody was reaching out to him to provide the cover. Now, you can buy it one time and forget need for renewal over next three years and there was more interest from distributors to sell the product because ticket size was bigger.
The product has seen tremendous traction. We reached Rs 100 crore the fastest in industry in this product and we crossed this in nine months for a new product. Customer pick-up has seen a rise in this product.
The valuation of ICICI Lombard has been one of the highest in the industry. Hasn't it helped set new benchmarks?
We are very pleased with the valuations. The stake sale of nine per cent that happened, was at a valuation of more than five times the book which is quite a benchmark value. It reflects the sense of opportunity in the Indian market. Within India, general insurance is clearly being seen as an opportunity segment. Valuation of the company is a reflection of franchise which we have been able to create.
Is listing the next logical step? Will we see any insurer listing in the near future?
It is a decision of the shareholders. We are very strong in terms of solvency and have adequate capitalisation. So the listing will be driven by shareholders. But it may take time and may not be around the corner. Act has been passed and gives flexibility on type of investors. The budget announcement of listing of public sector general insurers is a good signal and would give good visibility to industry since these are larger companies. In the medium term we will see atleast some companies listing.
But underwriting losses are still on the rise. Do you view it as a challenge?
It is a big challenge. If the management focusses on profitable growth, you will see behaviour change. Key players should focus on this. For this, you can select some pockets of business which may reduce burden of underwriting loss and that is what we are trying to do. That is why our combined ratio is significantly better than industry. Additional disclosures on quality of reserving could be considered as a step.
Incentives and disincentives should be looked at to deal with underwriting loss. If a company has high combined ratio there could be higher charge of capital or they should provide higher solvency. These could be ways of nudging the industry.
The industry has been adjusting to a lot many new regulations. Do you see that impacting growth?
The regulatory changes were largely driven by context changes and most of it was positive. The key driver for industry growth is underlying economic growth. If the real Gross Domestic Product (GDP) growth is 7 per cent, then industry will grow 2.5-3 times the growth. Our view is that industry will probably grow plus minus 15 per cent. The new regulations are aimed at opening up of distribution side and will help ease the distribution set-up so as to drive penetration.
Banks have been asked to open up to more insurers. Do you see that happening?
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I think it will take a bit of time. Most banks will consider opening up in due course. In next few years, we will see more and more banks opening up to multiple corporate agency structure. This is good for customers and industry. Hope that it will drive penetration. Each insurance company may have strengths in some areas and as banks tie up with more insurers, they will see value in each of the companies driving certain segments business for them. In the long-term it will be positive.
In the past, ICICI Lombard has been active in the government health scheme. Will social insurance schemes continue to be a focus?
We have always kind of tried to play a role in social inclusion segment. This is not just because of the obligation but we believe that this is one way of expanding the insurance market overall as also because genuine social need that is there in that segment. With respect to Pradhan Mantri Fasal Bima Yojana, we have been a large player in crop insurance scheme and will continue to focus on that.
As an insurer, we have been a big player in Rashtriya Swasthya Bima Yojana as well and as and when new structure of the new health scheme comes announced in the Budget comes, we will participate. We are also looking at building outreach in these markets beyond social insurance schemes. It is not easy, because small ticket products have distribution costs to manage. We are focussing on partnering with cooperative banks, seed companies in those regions so that we can enter the market in a manner that is cost effective.
It has been almost a year since long-term policies were launched in motor insurance for two-wheelers. How has the response been?
The regulator allowed long-term motor products with up to three years' duration for two-wheelers. If you look at the two-wheelers segment, the policies are small-ticket. Here, the challenge for industry was to reach out in a cost-effective manner given that ticket size was very small. For customers, it was bit of a supply issue because nobody was reaching out to him to provide the cover. Now, you can buy it one time and forget need for renewal over next three years and there was more interest from distributors to sell the product because ticket size was bigger.
The product has seen tremendous traction. We reached Rs 100 crore the fastest in industry in this product and we crossed this in nine months for a new product. Customer pick-up has seen a rise in this product.
The valuation of ICICI Lombard has been one of the highest in the industry. Hasn't it helped set new benchmarks?
We are very pleased with the valuations. The stake sale of nine per cent that happened, was at a valuation of more than five times the book which is quite a benchmark value. It reflects the sense of opportunity in the Indian market. Within India, general insurance is clearly being seen as an opportunity segment. Valuation of the company is a reflection of franchise which we have been able to create.
Is listing the next logical step? Will we see any insurer listing in the near future?
It is a decision of the shareholders. We are very strong in terms of solvency and have adequate capitalisation. So the listing will be driven by shareholders. But it may take time and may not be around the corner. Act has been passed and gives flexibility on type of investors. The budget announcement of listing of public sector general insurers is a good signal and would give good visibility to industry since these are larger companies. In the medium term we will see atleast some companies listing.
But underwriting losses are still on the rise. Do you view it as a challenge?
It is a big challenge. If the management focusses on profitable growth, you will see behaviour change. Key players should focus on this. For this, you can select some pockets of business which may reduce burden of underwriting loss and that is what we are trying to do. That is why our combined ratio is significantly better than industry. Additional disclosures on quality of reserving could be considered as a step.
Incentives and disincentives should be looked at to deal with underwriting loss. If a company has high combined ratio there could be higher charge of capital or they should provide higher solvency. These could be ways of nudging the industry.