Radhika Mehta

The Indian insurance industry has seen it all, from being an open competitive market to being nationalised and back to being a liberalised market. The entry of private players in 2001 changed the dynamics of the industry and set new parameters for success.

Today the Indian general insurance market is valued at Rs 14,000 crore. It is growing at a rate of 20 per cent and is expected to reach Rs 45,000 crore in about 10 years. Private players have already gained a 10 per cent share in three years. No mean achievement when compared to the growth rates of countries like South Korea and Thailand, where the private sector took 15 years to gain a 15 per cent share of the market. India has 14 private players in life insurance and 12 players in the general insurance sector.

At a premium
Fiscal 2003 has seen private general insurance players posting a growth rate of 180 per cent, indicating a scenario in which the insurance industry is growing at a remarkable rate. Tata-AIG General Insurance, now in its third year of operations, is at the forefront of that progress. The company raked in Rs 241 crore as premium in 2002-03, a 200 per cent rise over the last year (Rs 82 crore), and sold 200,000 policies.

This success story has been scripted by Dalip Verma, managing director, who aims to take his company to a premium income of Rs 315 crore in 2004. "Tata-AIG’s USP is its balanced portfolio, with an equal distribution in different product areas," he says. He assigns the success to the company’s healthy claims ratio, one of the lowest in the industry. He also credits the success to proper market segmentation and efficient dealing of claims.

Tata-AIG was the first in the insurance industry to start a 24-hour call centre, an initiative that aided customer convenience. Other successes included the development of new lines, like the directors' and officers' policies, errors and omission for the IT and ITES industry, and the company’s net-based travel insurance policy, which can be issued 24 hours a day through the Internet.

Brokering a good deal
Tata-AIG is bullish about insurance broking. "Being a very intermediary-friendly company, we would like to manufacture the product and have many people distributing it," says Mr Verma. It is an idea whose time has come. In mature markets general insurance is completely broker-driven. In the US alone there are 5,900 insurance companies, with 3,700 of them having less than 20 people. Also, there are over 17,000 brokerages, with more than 80 per cent having less than 20 people.

Tata-AIG has an in-house department to interface with brokers. "It s a large opportunity," says Mr Verma, "and one can easily imagine the employment opportunities this channel will provide and the market penetration it can achieve, if all goes well."

The plans are ambitious, but Mr Verma is sure that the Tata-AIG brand will help bring them to fruition. The brand is an amalgamation of Tata and AIG, an AAA-rated global company with an asset base of $590 billion and years of insurance expertise. "Both companies have similar value systems. Tata-AIG is the only joint venture MoU in India that has stood the test of time, in both the life and general insurance areas."

The per capita spend on insurance in India is $9, compared with $2,500 in the US and $50-100 in Southeast Asia. The rise in the number of nuclear families will provide an impetus for growth. However, this needs to be supported with parallel developments in the industry.

Regulations now allow companies to pay commissions on premium. This has resulted in the development of a professional force in insurance. "We will have 875 agents across all insurance areas by June 2003," says Mr Verma. The resultant simplification of the process has led to customer convenience.

Changing times
According to Mr Verma, "Liberalisation and tariffs don't go together. However, de-tariffing will happen in stages. The 26-per cent foreign equity cap is expected to rise and the Rs 100-crore capital requirement may well come down. Once de-tariffing comes into play — this is expected to happen by 2006–08 — and if capital requirements come down, we will find players getting into niche areas within the broad non-life category."

The concern about high premiums has been exaggerated. According to Mr Verma, some currently under-priced sectors will see premiums rising once tariffs are removed. On the other hand, Indian fire-tariff rates have remained high in relation to global rates.

The global general insurance industry has suffered due to September 11, corporate scandals, the Iraq war and Sars. Although these events have made insurance in India cheaper, global reinsurers have started imposing stiff pre-conditions for renewing treaty arrangements.

Says Mr Verma, "Contrary to popular belief, reinsurance is a transfer of balances, not an outflow of capital to foreign players. Currently, India is a very small player in reinsurance. Growth in the market will need to be supported by the development of infrastructure and robust regulations."

Key to growth
The greatest barrier to insurance is penetration. "The strength lies in building the back end. Products need to be supported efficiently through identification of affinity and social groups and market segmentation."

The next focus area is the development of distribution channels. Companies need to identify bodies with existing channels providing major distribution. The Internet has not led to more penetration for insurance. "The online channel is used more for information," says Mr Verma. "The buying process needs the personal touch." Tata-AIG is looking forward to the development of the Tata brand loyalty programme. This will enhance cross-selling opportunities for all Tata products.

With the regulatory framework in place, Mr Verma thinks infrastructure development and mass education hold the key to the growth of the general insurance sector. Companies will also need to focus on distribution and adherence to prudential financial norms.

For Tata-AIG, the investment strategy is conservative. The company is investing in corporate and government bonds. "We might invest in equities, up to the amount allowed by regulations, after we reach an asset base of Rs 750 to 1,000 crore."

The road ahead
Tata-AIG is keen on being one of India's top private general insurers. It has grown 509 per cent year-on-year till April 1, 2003 and its client base is now equally divided between corporate and retail. It will be 60:40 in the future, with retail being the major component.

"We not only want to be the preferred insurer for Tata companies — they form 20 per cent of our portfolio — we also want to continue to build the image of being a market player, forging relationships with every top corporate in India," says Mr Verma. Considering this performance, Tata-AIG seems well on its way to greater achievements.

Uploaded on September 25, 2003