Rising interest rate and high fuel prices will make growth in the general insurance sector challenging in the current financial year. Hemant Kaul, CEO & MD Bajaj Allianz General Insurance, tells Niladri Bhattacharya that during 2011-12 the general insurance industry is expected to grow by 15 per cent as against 22 per cent last year and profitability remains a key challenge for the industry.
Why do you think the profitability still continues to elude the general insurance industry?
The main challenge is profitability, not growth. Riskier businesses should be priced higher and less riskier businesses should be priced a little lower, and we as an industry still do not price risk appropriately. In our quest for topline, at times we forgo pricing and that is why this industry has a challenge in terms of profitability. If you look at the results of the last financial year, in the private sector we are the one of the few companies that has made profit.
Motor insurance continues to run in losses largely due to the third-party motor pool. Do you think the recent measures by the regulator will help improve the underwriting performances?
Six months ago, I would have rated third-party (TP) motor pool as the most severe systemic risk that the general insurance companies faced. The primary reasons being the price of risk that we were covering were inappropriately priced. Claim ratios are estimated at 150 per cent of the premiums. Had this situation continued, the general insurance industry would have faced an imminent danger of becoming insolvent, as losses were almost wiping out the balance sheet. It was a very welcome initiative that the regulator did by increasing the TP prices and implemented it from April 1. Apart from this, we hope introducing an index-based pricing to review the TP prices on an annual basis based on the cost and frequency of claims, and inflation, will remove the biggest systemic risk.
Health portfolio has claim ratios are in excess of 120 per cent. Do you see the recent increase in premiums will restore profitability?
There are three or four major trends developing in group health insurance which are restoring the profitability. One, companies are increasing the premiums. Over the last one year, premiums have gone up by 12-15 per cent. Second, companies are making their employees more responsible by introducing elements like co-pay. Now, 35 per cent of the corporate houses have an element of co-pay in their health insurance policies. Then corporate bodies are also opting for sub-limits for various ailments. All medical policies 7-8 year ago had these same elements, so we are going back to the basics. There are some challenges, but we are trying to address it.
What are the additional challenges?
In insurance, there are three factors which the corporate houses and individuals needs to look at while choosing insurance partners. These are pricing, servicing and claim handling. But the trend that is worrisome is that people treat an insurance policy as a commodity and only thing they consider is the price. But they must also look at the other two important parameters like servicing and claim handling.
How do you see the growth in the general insurance industry in the current financial year?
This year will be challenging for the industry. Motor insurance accounts for more than 40 per cent of the industry; high interest rates and high fuel prices are taking a toll on car sales. High interest rates are also slowing project implementation, so this year will be challenging. Last year, the industry grew by 22 per cent and maintaining 15 per cent growth this year will be a challenge. But the bigger challenge will be profitability.
