For now, detariffing means cut in prices

According to the IRDA’s annual report for ’05-06, Bajaj Allianz General Insurance was the only general insurer to have underwriting profits for the past two years running. The second largest non-life company in the private sector has set itself a marketshare of 10% in the next two years.

It has been three months since detariffing? What has been the experience?

Broadly, there are two aspects to detariffing, one is about segmenting customers and pricing them accordingly. Segments where losses are high, you charge a bit higher and where the claims experience is good you charge them a lot less.

The second aspect is about the pricing per se. The immediate impact of detariffing has been that rates have gone down across the board without any customer segmentation. So, for now detariffing has really become more a reduction in price than anything else. For instance in the motor car business, rates for ‘own damage’ cover are down 20%.

Similarly, in fire and engineering there has been a dramatic reduction in rates and there has also been a dramatic reduction in deductibles, which means that insurance companies are providing more cover for lesser premium. Such an across the board reduction could affect profitability. Personally, I feel that this is not sustainable, as balance sheets of companies could get impaired if this continues.

Competition in non-life is highest in April when major accounts come for renewal. What do you expect next week?

Most corporates — I would say about 75% — have decided which company they will go with. The ones that have not are trying to do is bring down prices as much as possible. I feel that on one side, April 1 will lead to a lot of competition, but on the other side if you look at a company like ours — March and April are almost equal months in terms of business. So as focus shifts more and more toward retail the significance of April 1 will reduce.

With detariffing corporates are in a position to bargain for best deals. How has the individual gained?

The immediate impact on individuals can be seen from the perspective of private car owners. However, I feel that individuals are yet to benefit. One of the challenges for the industry is to control claims. We have seen already health insurance prices increase by over 100% in a few companies because of adverse claims experience. I foresee similar things happening in health and maybe after one or two years in private car insurance where right now repair charges are going through the roof at dealer workshops. If insurance companies keep writing business without focus on loss control, premium rates will rise over a period of time.

Before detariffing there was a perception that individuals with good driving records would get better rates. Does the industry have the infrastructure to price policies in such a manner?
The infrastructure is present. The insurance industry does have the data in respect of claims experience across various makes and models of cars. The theft experience across cities is also there. But as I said, unfortunately nobody is looking at pricing appropriately and right now the focus is on reduction of prices. We should see underwriting discipline coming into the market as insurance companies cannot write business in a illogical manner for beyond a year or two.

Another perception was that detariffing would improve penetration of health insurance since cross subsidies offered in ‘group mediclaim’ would be eliminated. What is your experience in health?

If you look at the companies that are driving the group health business today they are largely the services companies such as information technology and financial services. These companies never anyway had any substantial fire business to cross subsidise. So the change had already started in group health covers as insurance companies have started becoming logical in their pricing. We already have seen some stabilisation in prices although loss ratios may continue to be above 90% in ’07-08 as well. Health insurance penetration will not be affected by detariffing since health has in any case been growing at 25-40%. But the impact would be that by 08-09 it should become a portfolio that breaks even on its own.

To what extent will competition affect the balance sheets of non-life insurers this year?

Compared to last year, our underwriting profits are likely to be less. Given that we are among the very few to report an underwriting profit, I expect the overall underwriting loss for the non-life industry to go up.

What will be the impact of the creation of a new holding company for Bajaj Auto’s financial services business?

Of our total shareholding 74% is held by Bajaj Auto. So any restructuring planned by them will not have any impact on us.

Your shareholders have announced the creation of a new holding company for distribution of financial services. How do you plan to utilise this company?

The distribution company is an initiative of the life insurance business, which has a huge distribution force. We could in future look at their becoming our corporate agents but we also have to see how we fulfil infrastructure and training requirements

What new initiatives do you have in mind for the Indian market?
In ’06-07 we have expanded geographically into 60 new centres. It has been over six months now since we started insuring commercial vehicles business in an organised way. We have also entered into a number of bancassurance tie-ups. Going forward our focus will be to increase the productivity of our agents and grow our agency force. We also want bancassurance to contribute 15% of our total business income. Thirdly, we want to ensure that that new geographies that we have entered start contributing to our business.

On the product side we are not really looking at any new initiatives this year. We are waiting for the April 1, `08 when the regulator will allow new products in new areas that is when we will look at new products. The focus from our side would be to maintain underwriting discipline given the current market.
How do you see the composition of your portfolio three years from now?

When we started the company in ’01, the objective was that in 10 years we should have 10% marketshare. I personally foresee that we are on track for the 10% marketshare although we have to wait and see how this detariffing impacts our business plan. In terms of portfolio, motor and health would contribute at 75% of our business in three years.

Motor insurance share should be 57-58% while health will be around 17-18%. Profits in motor insurance will definitely improve in future as I foresee premium on third-party liability stabilising and improving profits of the motor portfolio. Secondly, we as a company have been doing fairly well on motor in terms claims settlement. This year we have taken a lot of initiatives on settling third party claims.