L&T General Insurance has been in operation for about two years in the non-life insurance space and undertaking planned losses to balance out its initial investments. Joydeep Roy, chief executive officer of al Insurance, tells M Saraswathy about the company’s plans and demands from the finance ministry. Edited excerpts:
With the general insurance sector next in line for its share of reforms, what is your wishlist to the finance minister?
There is a strong push and desire from companies to relax distribution norms. We need to make sure that an open architecture comes in. For institutional distribution, making it a ‘one company for distribution’ model is no longer relevant. The other issue is the licensing norms of agents. What is most important is that the insurance company takes full charge of how they train, licence and manage rather than being mandated for a number of hours of training.
In terms of products, simpler products need to follow the use and file procedure, as long as the caveats to the customer are given and disclosure is perfect. On the taxation issue, the service tax dispensation in micro-insurance would be a big shot in the arm. On the personal taxation front, higher tax benefits for health insurance and introduction of a category for home are needed. There should be some mandated home category insurance, driven down by the government, for certain buildings.
On the expenses side, separate sub-limits on expenses make no sense for general insurance. The company should be looked at for its profitability, combined operating ratio and within that, it should be free to spend on staff and commission and others. If I find a channel or a particular method which would give me a very low loss ratio but has higher cost, it cannot be done today. I can do the vice-versa, take higher loss ratio and lower channel cost; which is not at all healthy for the industry.
What are the new products to be launched by the company this year?
This year, we will launch an affordable health insurance product with good features for people across the board. We will also introduce specific small and medium enterprises (SME) products. We will take care of all kinds of insurance for an SME, with a product that is easily available and simple to understand.
Public general insurers are looking to set up in-house third-party administrators (TPAs). Would you also consider the same?
The TPA business becomes viable because of scale. Till we have scale, we won’t think about it. But over a period of time, as we grow bigger, we have to weigh the costs. We still pay a variable cost for TPA and offer the customer the service of calling our call centre. If we decide to do it as a back-end work, the scale has to justify it. It will be a business efficiency decision and a branding decision. We’ll later take a call.
What is your view on the bancassurance draft guidelines?
The guidelines have come with a lot of caveats and geographic division. If it’s an option for the bank, it has to be left as an option for it whether to be a corporate agent or distribute multiple products. Each bank is different and what works for one bank might not work for another, and the zone concept might not work.
Are you comfortable in the motor segment?
In the commercial vehicle business, the third party premium and losses do not go to the pool anymore. It comes to our books. That doesn’t make it comfortable at all. The third party premium is still tariffed. Though price increase happened, we are still expecting losses in excess of 160 per cent. Earlier, it was 200 per cent plus. With increase in price due to inflation and other reason, losses would still be high. Though own damage part can be controlled by our pricing, we cannot still control the third party pricing yet. That makes commercial vehicle business still uncomfortable.
With the recent draft guidelines on health insurance, do you anticipate a rise in health premiums?
In individual health products, the prices are fixed. People would renew their portfolio and have changes if the health costs keep going up. Here, there is not much of a challenge. However, group health premiums are very low. It’s not a profitable business today with the increase in treatment costs, higher utilisation rates (inclusion of parents), and hospital rates that are difficult to control. Here, we are not looking at a big spread in group insurance. I see an increase in premium in the group business, without which it will remain and become more unviable. We wish to see a 25 per cent increase, if not more in some cases.
The company had reported a loss in FY2012? Do you see profits this year?
We have had a planned loss. We have spent a lot of money on technology, more than even what the industry does. We do everything through technology. In the first four-to-five years, we will see a loss, but it’s a planned loss. Also, premiums build up over time. But acquisition costs hit you immediately. So unless you reach maturity, the company does not get into the black. Further, if there is some hardening in fire premium, you can expect some property business taking a larger share.
Do you see a rise in your premium business numbers?
We are growing at 30 to 35 per cent. We are a bottom line-focused company. We don’t look at the top line. We accept business, if we think it’s at least viable. We do take the risk. But even a good risk is good only at a price. It’s a large market and under-penetrated. One has to find business elsewhere and not take share of the existing market. While we may show a loss due to the investments made, the operating margins are what we look at as being positive.