More than 10 years into the non-life business in India, AIG Inc, which holds 26 per cent stake in Tata AIG General, is ready to take growth to the next level. Julio A Portalatin, President and CEO, Chartis Growth Economies and Senior Vice President, General Insurance AIG Inc, who looks after operations in 52 countries, in his first interview in India, tells Niladri Bhattacharya the current third-party motor pool should be dismantled, and the regulator should free the prices. Edited excerpts:
It has been more than 10 years since AIG stated operations in India. How do you assess your performance?
The fact that in India, the penetration of non-life insurance is as low as 0.7 per cent excites us, especially when we compare it with other developed countries, where penetration is close to five per cent. We think while working with public safety issues, there should be more balance between regulatory necessities and financial reforms. General insurance business in India has been rather profitable, more so in recent times. Our results here in the last couple of years have been rather good. This year, the total growth rate has been close to 40 per cent, and our growth in auto insurance is more than double that rate. Over the next five years, we have aggressive growth plans and we would also like to improve our profitability.
Existing motor pool losses are one of the key concerns of the general insurance industry. What do you think is the solution?
Recently, there has been a lot of thought going into issues surrounding the auto pool. This means the regulators are recognising the fact that the current model is not sustainable, as they perhaps once thought. I think they are addressing those issues responsibly. Some other markets we do business in, have pools like those in India. However, the big difference is in many of those markets, necessary reform changes were carried out. These have moved through pools. For example, reforms in a break-even fashion, in which a fixed rate is not propagated; you leave it to the market, so that the pool can run and break-even. A free-market system is always a good solution when we are trying to bring innovation. To sustain stable development, you have to move with the changes at the market place.
What is the contribution of growth economies in AIG's business? Are you planning to enter any new market?
Growth economies, a total of 52 countries across the globe, contribute 10 per cent to AIG's non-life business. We are aiming to raise that to 15 per cent over the next five years, and over 20 per cent over the following years. We will invest more in markets in which we are already present — like Brazil, India, Turkey and Columbia — to ensure we maximise existing opportunities. We also want to continue to evaluate and analyse which other markets we may want to enter.
What are your comments on the much-awaited Insurance Bill, which proposes to raise foreign direct investment in the sector to 49 per cent? What about plans for an initial public offering (IPO) in India?
We are eagerly waiting for it. We would definitely like to increase our stake to that extent, whenever the law allows it. Issues like IPOs are tough to take a call on, when you have 26 per cent holding. Unless the numbers change in a way that allows us to introduce more innovation and more investment in India, so that we can continue to get good returns, any discussion on a potential IPO, at least from our side, is a bit premature.
What do you think would be the impact of the debt crisis in Europe on growth economies like India?
There is always some potential of some impact of a global event, owing to the relationship between regions across the globe. So, what happens in Europe would obviously impact Europe's trading partners. Similarly, what happens in the US obviously impacts its trading partners. Thus, there would always be some impact. But I think there are various causes of excitement in growth economies — there is a lot of domestic growth taking place in these markets, in addition to the trade growth. These are likely to continue to improve in these markets. Obviously, there are challenges as well. But we, as an organisation, believe we are well placed to take advantage of that opportunity, as well as tackle the challenges in infrastructure and public safety.
