Despite the motor pool losses, Tata AIG General Insurance grew by 35 per cent in 2010-11. The company, a joint venture between the Tata Group and American International Group, Inc (AIG), aims to grow its business by 28-30 per cent in the current financial year. Chief Executive Officer Gaurav D Garg, in an interview with Niladri Bhattacharya, says general insurance in India should reach the masses and that there is a need to introduce simple products. Edited excerpts:
Amid mounting losses on account of the third-party motor pool, a committee set up by the Insurance Regulatory Development Authority (Irda) had, last week, favoured the introduction of the declined risk pool in place of the current pool for third-party motor insurance. What is your take on this?
It is a step in the right direction. There has been a huge loss to the industry. The total loss ratio on account of the third-party motor pool was estimated at around 153 per cent. In all fairness, all companies should be following their fortunes for the kind of business they are writing. In the pool scenario, the loss ratios of some companies are very high, compared to others. We have to actually subsidise companies which are not taking due care in their claims' process.
In the case of the declined risk pool, on the supply side, there would be no constraint because everyone needs to be insured. If a vehicle doesn't get any insurance, the pool would insure it, and this would be shared by all the insurers. So, companies would bear their own share of the risk. Some companies have a very efficient claim settlement process. If you settle the claim faster, it is better for the customer, whereas if you delay it, it would be detrimental to both the customer and the insurer. So, it is good for both the sides and hence, it would be positive for the customer.
The penetration of general insurance in India is still very low, whereas for the life insurance industry, the penetration level rose over the last decade. What do you think is the reason and what is the way out?
I agree. Penetration of the general insurance industry has not increased over the last decade. It is around 0.6 per cent, which is way below the levels of the industrialised nations, while for the life insurance industry, it moved up to four per cent from one per cent in the last decade. This proves general insurance has not reached the masses. So, in a way, it remained concentrated in the metros and large cities. An open architecture is required for the insurance to penetrate deep into India. There is also a need for simple products to be introduced —products to cover personal accidents, and home accidents.
Despite motor pool losses, Tata AIG managed to grow by 35 per cent in 2010-11. How do you see business this year?
The previous financial year was very good, except for the motor pool business. Our profit before tax was Rs 56 crore. Our total premium income grew 35 per cent --- the highest among the top 12 companies, including public sector companies. The total premium income at the end of the financial year was Rs 1,214 crore. So, the top line has been very good. Our expense loss ratios declined.
In the current year, we expect to grow by 28-30 per cent. We plan to add a dozen branches to the existing 54 branches. Currently, we operate in 110 locations. Our solvency ratio is 1.68, even after accounting for the motor pool.
What will be the capital required this year?
We infused Rs 65 crore last year. This year, if we grow within our budgeted target, we would not require any capital.
What would your thrust area be during 2010-11?
Currently, motor and health constitute 30 per cent and 10 per cent of the total business, respectively. The liabilities side accounts for 12.3 per cent of the total business. We are already among the top three insurers in commercial and marine liability. We would now concentrate on building the retail side --- health, motor and rural business. On the health side, we would focus on wellness products.
The Insurance Bill is still pending in Parliament. If it secures the nod, do you think this would pave the way for general insurance companies opting for initial public offerings?
Unless there is sustained profitability in the sector, listing is not going to happen. Second, we need to have a very clear outlook about the industry's roadmap. These are two important things on which listing of general insurance companies would depend. As far as Tata AIG is concerned, we are very optimistic about the long-term prospects of the insurance industry. AIG non-life has a new CEO and he is also upbeat about the Indian insurance market.
