With more than 10 years experience in the Indian market, Tata AIG General Insurance (TAIGG) has carved a niche for itself through a focus on service and use of technology. In an interview with Sujata Agrawal, chief executive and managing director Gaurav D Garg talks about the company’s vision and explains why the future of insurance in India is about opening up to new horizons.
Insurance is still a nascent sector in India. How has this market developed over the years?
Insurance as a sector was nationalised in 1972 and opened up to the private sector in 2000. At that time, six private sector companies started operations, including Tata, which entered into a joint venture with AIG, the world’s largest insurance group, to set up two companies, one for general and the other for life insurance.
There was no deregulation as such; the only change from the earlier regime was that private insurers came into the market. They had to follow the same policy wording and tariff pricing as the state-owned companies and, in fact, sell the same product at the same price. The only differentiator was the service element.
The real deregulation of the industry happened on January 2008, when a regulated tariff system was removed and free pricing was permitted. That was quite a challenging year for the insurance industry. If you look at trends across the world, as soon as free pricing happens, the price usually drops to ridiculously low levels. It then takes about four years for the market to stabilise and find the right price levels. We are now into the fourth year so the market remains highly competitive.
Over and above this there was the global financial meltdown in September 2008, which resulted in the industry showing almost no growth in 2008. However, the last two years have been good. Broadly speaking, the insurance industry is currently valued at around Rs400 billion and growing by 24 percent every year.
What are the challenges of marketing insurance in India?
The challenge lies in increasing penetration. When the industry opened up the value of the general insurance business in India was around 0.6 percent of the country’s GDP (as calculated by collection of premiums); it is currently at 0.7 percent, one of the lowest in the world. Our Asian market peers show higher penetration than India, and that’s because the addressable or insurance-buying population is small. Out of 1.2 billion Indians, nearly 70 percent are non-urban and a large percentage lives below the poverty line. Our financial inclusion is not high.
What are the innovative products that TAIGG is offering?
While products are regulated across the industry, there are a couple of things we can do, such as add-on covers or offering differentiation on baseline-standard products like fire, marine and motor insurance. We recently did a market survey that threw up findings on pain points for customers; we have tried to address these. For example, when you buy motor insurance from TAIGG, there are add-ons such as nil depreciation, protection of no-claim bonus, replacement car, etc.
We created a new product called ‘private client group’, which is customised for high net worth customers with an art or wine collection or a summer house. For instance, for the art collector, we will cover not only the works of art but also restoration and storage.
Technology is a big differentiator. We use Tata Communications and Tata Teleservices for our data services and they have created special Photon data cards for us and a secure network. So we have secure connectivity to our servers anywhere in India. For all micro insurance claims, like on cattle, we use personal digital assistants. Our assessors have smart phones and they are able to transmit claims data so that the claim examiner can see them online and approve the claim immediately. The funds can also get transmitted electronically to the insurer’s account. We have been recognised by the International Labour Organisation in Geneva for claim service for micro and cattle insurance and have received a grant of $85,000.
Could you tell us about your relationships with channel partners and distributors? What are the challenges here?
When we entered the market we broad-based our distribution and we continue to have a strong multi-channel distribution. We have three major banks as our corporate agents, HSBC, Kotak Bank and DBS Bank, and a host of cooperative banks. We have strong ‘affinity tie-ups’ with Tata Motors, Tata Capital and several others. We are now investing in e-business, selling through our website and tying up with other websites. It’s quite effective as Indians are getting more net-savvy and many people are renewing policies online. We have also put claim trackers and notifications online. All of this is coupled with mobile messaging technology so that people can track the progress of their claims.
For home insurance, we are talking to builders, including Tata Housing. But the penetration of home insurance is low in India (because the risk perception is not high). I feel this is one area where we need to educate people. Since motor insurance is compulsory, people pay Rs12,000 as premium for a Rs500,000-worth car. But for a house that costs Rs6 million the premium may only be around Rs600-1,000 for a basic insurance cover.
How do you de-commoditise insurance?
We are working constantly on trying to de-commoditise the products. There are two ways in which one can do this. The first is to influence the decision-maker such as the dealer or sales agent for new car insurance. The second is to establish your brand with the end customer.
Being a Tata company, we are fortunate. Insurance is about promise and trust and the Tata brand name has a natural pull because it is a brand that stands for trust. When we entered micro-finance insurance and went into the heartland of India, the non-governmental organisations we approached were willing to work only with government companies or Tata. We are now expanding our network; we have opened some 40 offices in smaller cities.
Did AIG’s problems in the US have an impact on business in India?
Fortunately for us, India was not affected. What is interesting is that, worldwide, the AIG General Insurance business has been rebranded as Chartis, except in India. We have not changed the brand to Tata Chartis because Tata is a big brand and there is no negative impact because of the AIG name.
Service is a critical factor for success in the insurance business. What have you done in this area?
Customer service has been the priority for me ever since I rejoined the company in 2007. It is also one of the strategic intents that we will be working on in the next five-year plan. Our challenge is to measure and constantly monitor customer service.
We have changed our focus from business-to-business and business-to-customer to customer-to-customer. We started measuring service levels from the time the customer approached us to the time the customer is fulfilled. We set up benchmarks for cycle times in each area and measure it across functions. What we found is that while our service level agreements or benchmarks were performing at 99-100 percent, the end customer was still not getting the deserved service. And when we measured it from the customer-to-customer perspective, the number dropped to 50-60 percent. We were actually only half efficient as far as the customer was concerned. We are now working to get that number back up so that our customer gets service as promised.
With more companies entering the general insurance business, what is TAIGG doing to stay ahead of the curve?
It’s a totally open field and I am not afraid of competition. There were 107 general insurance companies operating in India in 1972. Currently there are 24. The market has grown and the industry is booming.
There is competition but it is limited to the 20-25 big cities. We need to branch out further into smaller cities and into rural India. In the smaller towns there is scope to become more product-centric. We can also tie up with the likes of the Rallis Kisan Kutumb network.
What are the opportunities that you see ahead?
The market is huge and so is the opportunity; there are a lot of uninsured segments in the market. The opportunity is there to grow the pie rather than only taking a share of the existing pie. India’s 1.2 billion people market is divided into various sizeable segments. However, national regulations have set processes that address this whole market in a homogenous manner. A licensed agent has to go through 50 hours of training and pass an exam, regardless of what kind of policy he will eventually sell. I have said, and have been quoted in the press saying this, that you should be able to sell insurance through the local grocery store. That’s how penetration can improve.
Our vision is to be India’s preferred general insurance company. We have set a five-year target to grow gross written premium by 24 percent to $1 billion, increase market share among private players to 10 percent and deliver 21 percent return on equity.
Strategically, we aim to be the leader in customer service and lead the market in product design and delivery innovation; we also aim to build a rapidly scalable service delivery model and infrastructure, and bring the cost structure down. We are investing in technology and our goal is to increase our geographical footprint, penetrate the rural sector through micro insurance, foray in the health segment and ramp up the auto business.