Tariff dismantling 'will end cross-subsidies in insurance'

Dismantling of the current tariff regime will put an end to the cross-subsidisation of non-tariff products taking place in the insurance sector.

"When the tariff regime is dismantled then each product will stand on its own," said Royal Sundaram Alliance deputy managing director Antony Jacob. Premiums on profitable businesses like fire and engineering will drop.

Corporates today are able to get very attractive terms and pricing for group health and personal accident products.

This is despite the fact that these are often loss-making portfolios and even treated as freebies to garner profitable corporate businesses "" essentially fire and engineering portfolios, which are tariff based.

As insurance companies cannot charge a lower premium for tariff products, they make the most of profitable businesses, by charging the corporate less on non-tariff products in order to win the business, pointed out insurance officials.

Unlike most of its counterparts in the general insurance industry, Royal Sundaram Alliance sees greater opportunity in the small-medium enterprises (SME) segment.

Said Jacob: "We are gearing up to tap the SME market as we look at small offices, hotels, restaurants, and shops. This is part of our plans to focus on the retail market where we see tremendous growth."

Royal Sundaram Alliance through its alliances with Citibank, Standard Chartered Bank, ABN Amro Bank, American Express and SBI GE, has mopped up a premium of Rs 12 crore through sale of personal accident policies and another Rs 4-5 crore through sale of individual health plans, said Jacob.

Royal Sundaram Alliance is drawing up its plans for fiscal 2005 and expects the current growth rate of 50 per cent to continue with a premium income of Rs 400 crore. "Our net profit should double next year at Rs 14-15 crore," said Jacob.

The company booked Rs 5 crore profit in the first nine months of fiscal 2004, having mopped up premium income to the tune of Rs 187 crore as of December 2003.

The Chennai-based general insurance company is confident of closing the year with a total premium of Rs 270 crore, which should take its net profit to Rs 7 crore profit for 2003-04.

Moving away from its earlier strategy to sell through corporate distribution partners, Royal Sundaram Alliance proposes to expand its agency force from the current 900 to 1,500 in the next six months.

"Our agency force and tie up with regional banks like ING Vysya Bank, Lakshmi Vilas Bank and Repco Co-op Bank will help us focus on the SME segment," said Jacob.

The company expects to mop up a premium income of Rs 18 crore from the SME segment but hopes to double this next year.

Commenting on how the opening up of the sector has made a huge difference from the customer's point of view, Jacob said that even public sector insurers have improved their client servicing.

"Claims which used to take six months are today taking six days. If an insurance company cannot deliver, a customer can go elsewhere," he added.