Mr Oommen brings plenty of experience and expertise to the task at hand. An alumnus of the London School of Accountancy, he joined American International Assurance (AIA) in Kuala Lumpur in 1981. In 1990 Mr Oommen was appointed vice president and comptroller of AIA and in 1999 he was designated as vice president. In 2000 he was deputed to Jakarta, Indonesia, as vice president-director of the AIG Lippo Life joint venture.

In this interview with Alok Agarwal, Mr Oommen talks about the company he heads, the challenges it faces and its plans to come good in the potentially lucrative Indian life insurance sector.

tata.com: There is an impression that AIG's presence in the non-life insurance sector is more pronounced the world over than in life insurance.
George Oommen: AIG has been a composite insurance company all along. The only thing that has changed over the years is the structure of its business. In 1981 life insurance comprised about 30 per cent of AIG's operations and non-life 70 per cent. Today 50 to 55 per cent comes from life and only 40 per cent from non-life (the rest is derived from financial services). AIG's life insurance division has been growing at an average of about 15 per cent.

As far as Tata AIG is concerned, we set up base in December 2000 and began commercial operations in April 2001. India is the last frontier in the world for AIG before it begins to sell in outer space! When we were looking for a partner in India, the Tata name cropped up before anyone else's. Tata is a big name in India and it has a fantastic brand name. Of the total equity investment of Rs 125 crore, 74 per cent has come from the Tatas.

tata.com: Which are the cities in India where you have branches?
GO: We are already operating from Mumbai, Delhi, Chennai, Kolkata, Hyderabad, Bangalore, Pune and Chandigarh. We will have branches in Ahmedabad, Kochi and Jamshedpur in the next phase and we will add a maximum of five cities every year to our list.

tata.com: Give us some idea about the potential of the life insurance business in India

Tax benefits have been driving LIC's business over the years and the same will drive ours, too, since the same incentives are available to all insurance companies. I believe there is a large potential in rural India. As stipulated by the Insurance Regulatory Development Authority [IRDA], five per cent of our new business must cover rural India and the figure must reach 15 per cent by the fifth year. All of this is very encouraging for the life insurance sector.

tata.com: How does Tata AIG propose to compete with LIC, given the latter’s strong selling and distribution network?
GO: There is no question of competing with LIC. It already has about 8 lakh agents and that number is likely to go up to 10 lakh by the end of the current fiscal. No company is allowed to poach on another's agents, least of all on LIC's. We only select freshers and, five years down the line, we hope to have about 1 lakh agents. Right now we have about 5,000 agents, either undergoing training or already on the streets.

Unlike the non-life segment, selling life insurance requires a more personal touch, which is why good agents are important in this business. In life insurance, policies are ‘sold’ not ‘bought’. As of now about 60 per cent of our agents work on a part-time basis, but the ratio will come down to 50 per cent by the end of our fifth year [in operation]. All our agents’ earnings are commission-based. They make a 40 per cent commission in the first year on new business and 7.5 per cent in the next two years on renewable business. The commission rate declines to 5 per cent in the fourth year.

We are careful about selecting and training our agents; we want them to remain committed. Our training involves a minimum of 100 hours of classroom study and then there are various levels of training beyond 100 hours. We follow a very structured system. It's a challenge for us to make them realise that they are building a career. All said and done, we do feel there are limitations on the agents' side in our business. However, we are banking on the Tata name, which, I am sure, is working and will continue to do so in the future. Please do not forget there is enough business for everybody. Even if I get 1 to 2 per cent of the 250 to 300 million insurable Indians, I would have covered a lot of ground.

tata.com: What’s the quantity of business you have already generated and what is your target for the current year? What are your management expenses and when do you hope to break even?
GO: We hope to sell about 50,000 policies by the end of March 2002. So far we have sold about 8,000 policies and approximately 4,000 are under submission (about 50 per cent of our business is generated in the last quarter of the fiscal). We have yet to venture into the rural areas, though. At present we are not insuring people above 60 and under 18. We do have products that cover these age groups in the world market, but we will at a later stage design something that’s suitable for the Indian market.

At the current pace of growth, we hope to break even between the fifth and seventh year. However, if we decide to get very aggressive about our expansion, which would mean opening more branches, incurring more overheads and more fixed expenses, we will break even by the end of the seventh year.

As for management expenses, in the life insurance segment these have to be understood differently. In the first year of the premium income, management expenses amount to more than 100 per cent, largely on account of start-up costs and high acquisition costs, which include the costs of agent commissions, medical underwriting and processing of new business. But management expenses go down substantially from the second year onwards. Over a period of time, we hope to bring our management expenses down to approximately 5 per cent of revenues (LIC's is 20 per cent).

tata.com: There is a perception that LIC has scored over the new private sector insurance companies. Is this true and, if so, why?
GO: It would not be wrong to say that a lot of the advantage of advertising by new private sector insurance companies has by default gone to LIC. While we have created a lot of awareness through our advertisements, LIC has benefited. Why? Because LIC has a much wider branch network, and buyers are surer of LIC because it has been in existence for long; they are more comfortable about its safety. I must add that some LIC agents continue to follow the unethical practice of offering discounts from their commissions to new policy buyers; this makes a difference.

tata.com: Is Tata AIG thinking of introducing policies that are better and more innovative than those of LIC?
GO: To come out with innovative products will take time. We are all still new in India and are kind of
testing the waters. New entrants are averse to taking risks and have, therefore, taken the safe route. Moreover, innovative products have failed in the past (the unit-linked insurance plan, for instance; it was too complicated). Agents will sell only those products they themselves understand and are comfortable with.

Where we are scoring is in terms of additional benefits. In terms of basic product structure there is not much variation, but in terms of add-ons there are many differences. Take, for example, our 15-year ‘term with refund of premium’ policy, which is similar to LIC's Bima Kiran: not only is our premium cheap, which helps the buyer go for a higher cover, it also has an add-on in the form of a double and triple accident indemnity rider, which Bima Kiran does not have.

tata.com: Critics say that the new private sector companies are riding piggyback on LIC's premium tables and rates.
GO: The premium rates and tables used by us are our very own. Our premium rates appear to be on the higher side when compared with others because our policies carry more add-on benefits. All our policies, endowment, money back, etc, carry compound reversionary bonus, which means the bonus is being compounded. In the case of LIC, the bonus is simple. We give terminal bonus on death. Then there is a guaranteed addition of 10 per cent of the sum assured after 10 years.

We have been able to sell even though our premium rates are higher by 30 to 40 per cent because of the value we add. The market understands this value addition very well. Premium rates are not dependent merely on mortality rates; they also depend on morbidity, inflation, solvency rates, taxes, investment rates, expenses and more.

We want to invest more in technology. Our future plans include speeding up our response time. We will equip each of our offices with underwriters and claim processors, besides offering personalised service to policy owners.