The topic of the second panel discussion at Mint’s insurance conclave was: Non-life insurance 20-20: Issues for the next 20 years. On the panel were Antony Jacob, managing director, Apollo Munich Health Insurance Co. Ltd; Bhargav Dasgupta, managing director and CEO, ICICI Lombard General Insurance Ltd; Rakesh Jain, executive director and CEO, Reliance General Insurance Co. Ltd; Warendra Sinha, MD and CEO, IFFCO Tokio General Insurance Co. Ltd; Alice G. Vaidyan, chairman and MD, General Insurance Corp. of India; and Deepti Bhaskaran, editor, personal finance, Mint. Here are the edited excerpts:
Deepti: I am going to ask our experts to sort of go back in time and pull a key reform that they think has shaped the industry thus far. I am going to start with you Antony.
Antony Jacob: I think the best part of the 20 years that have gone by is that today there is definitely a huge awareness of a tool called insurance, which is protection. It is a tool which is available for protecting different types of assets. But if I could just stick to one of them, which is health insurance, which I am personally involved in the last several years; I think there have been some outstanding changes. From a one size fits all products, which we had in the early years, today you have different types of products to actually cater to the different needs of our people. Personally, being in health insurance, I have had some of the visitors from overseas to look at some of the features which our industry has built over the last 20 years and they have actually been replicated in other parts of the world. That speaks about the change which has happened. And I can give you one example. The whole concept of floater policies was not heard of in the part of the world. It came about not very long ago. Then the restore feature—restoring the sum insured if you busted it—multiplying it as a 100% bonus. So there are several things which have changed the landscape of health insurance. But having said that, I think there is much more to do.
Warendra Sinha: We are here wanting to talk about this decade and the decade to come in the future. I will take a small deviation and like to take you all to a decade before that also. I am 37 years old in the industry and when I joined in 1982, I am still not too sure what the total premium figures were but I don't think it was more than Rs500 crore for the whole non-life industry. Today we are talking about a Rs170,000 crore. One had never thought that this industry would grow with such leaps and bounds. There were four companies owned by the government and I belonged to one of them and honestly life was fairly laid back, nobody complained, customers were happy with whatever we did. We were meant to be the good guys. We were all meant to be LIC fellows; so gradually we came into our own and I remember in 1987 when the mediclaim was introduced, it was a big thing; a standalone policy and health was the need of the hour. When we joined, fire and marine comprised of 50% of the portfolio. Today, they are less than 10% of the portfolio. So this is what happened in the 20 years before the market opened up. A lot of things happened. Private companies and the broking community came in, the in-house distribution channels like the government had development officers, etc; they became a run-off category. And the style of working became a lot more competitive and people started to look at technology.
Bhargav Dasgupta: If you look at the industry post liberalization opening up, we are still in the high teens. And typical of that age, there's been a lot of growth, lot of change, taking on the current incumbents; so all of that has happened. So you have seen lot of changes in terms of the products. And I am speaking specifically from the non-life side. You have seen the industry grow 17x; it was roughly about Rs10,000 crore in 2000-2001. It is about 17 times now. What is interesting, I think, is that there have been a lot of distribution reforms. One change that people don't talk about enough but I think we need to see more of is the disclosures, which if you go back even 10 years back, I don't think we had disclosures as what we see today. I will give you a small example. Irdai was the first regulator to come up with the grievance management system for customers. Track the number of complaints that we have seen as an industry post that change; so that is transparency, right? Customers get to know our numbers that are publicly available if you are interested. So that one small measure has actually changed the dynamics into the number of complaints, at least of non-life. So there are many small things we have seen. If you insist on looking at a big one, then it is the detariffication that happened in 2008. And that has completely changed the dynamics of the industry in terms of how you succeed in the new regime.
Rakesh Jain: First few years went into discovering the industry for many private companies, where there were only few people who wanted to attempt it at that stage. The most important thing that I think happened was the detarrifing in 2007. Of course, we had a few products before that which was without pricing control but that was marginal. But really in 2007, we really set out almost the whole of the industry on its own. People were left out to decide what they want to do and believe me, all of us were at crossroads. We made a lot of mistakes. We paid a lot for those mistakes as well. If I look at now, today I see the companies are getting listed, becoming transparent in the biggest sense. Apart from the policyholders, there will also be investors. If you really see, it is coming off age now. If we had not gone through some of these experiences, I would doubt that we would reach this stage today to really claim the next 20 years in the rightful manner.
Alice G Vaidyan: If you ask me personally, a lot of changes have happened. We are talking of a young nascent market as compared to the advanced saturated mature markets of the West. So things will only improve from here. Of course, lot of changes need to happen. From a regulatory point, I think many welcome changes have come in. But from a market perspective, what I thought from a reinsurers’ point of view, GIC from a holding company became a pure reinsurer in 2000. We donned the mantle of reinsurer and that has worked well. So as a dominant reinsurer in the Indian market with a 65% market share, it has served us well. But after that, the biggest reform that I see as a reinsurer was that the market has opened up for foreign reinsurers. I think in a true spirit of competition, we have now more than 11 reinsurers in the market. I think it is the right way the markets should move. We are moving to a foreign reinsurance hub. I think we are in the making given the interest in the Indian market and given the growth potential for another two decades to come.
Bhaskaran: Listing to my mind was a milestone event and in terms of disclosures, I think there were a lot of metrics that came to light by which you evaluate the insurance industry—whether it was life or non-life. But has this change been of the industry or just of the companies that are listed? Is it just a listing phenomenon or is it the industry that is moving in that direction of looking at underwriting profits and their loss ratios?
Dasgupta: I will probably share from a company which is listed. But my guess is that this will be largely reflective of most companies. These metrics are not new. All of us anyway were being measured internally on combined ratios and underwriting practices and on return on equity. It is just that now that some of us are listed, there is a lot of awareness as there is lot of interest of a different stakeholder, which is let's say the retail investor or the other investors. Secondly, there is lot more scrutiny. For a listed company, there will be always a lot more scrutiny than an unlisted company. So there is a lot more focus on delivering on some of these agendas for some companies related to the others. But it's really a shareholder objective. If a shareholder of an unlisted company wants to focus on combined ratios and I am aware of quite a few companies who do that; it's not just the listed companies who do that. The issue is that when in a relatively nascent industry, the transition of detarrification happens, there is a discovery process. Initially when the prices collapsed, all of us tried to discover how to write business in the new reality and there were learnings for us. Secondly, as new companies come in, there will be some amount of expense claim; they will have to build a business till they reach a certain stable level. I think the issue is again what the chairman said as well. A company after a certain point in time, maybe after 10-12 years, they should be able to deliver a healthy business, which is sustainable in terms of combined. So it is not so much about listing, it is about what the shareholders drive even for unlisted companies.
Bhaskaran: Wouldn't you agree that looking at underwriting profits is something that the industry should focus on? Is it something that the industry has adopted?
Dasgupta: You even heard the chairman talk about it. So it's something that even the regulator looks at. I think all of us understand that if you want to build a long-term sustainable business, you need to focus on underwriting because if you don't, at the end of the day, your customers may even have a poor experience. You need the money to pay claims. Secondly, where do you have the extra money to invest in future? So underwriting is a no-brainer; you have to focus on that. The point that I was making is that maybe certain companies when they enter a market, for some period of time they need a bit of leeway, which the regulation allows. But after a point in time, ideally most companies should focus on underwriting. It is not to do with a listed company or an unlisted company.
Rakesh: There will always be a few people who set the tone; but I broadly see a trend that most of the unlisted companies are held by people who are listed. So they are not above the scrutiny which generally a listed company would have. The second thing is, 15-20 years into any industry, everybody looks at the business model. And structurally speaking, these businesses are now getting recognised as valuable businesses. These are no longer a small subsidiary of a large entity. I think it is reflecting opportunity for the businesses also to demonstrate where they stand in the scheme of things. I think these things are unparalleled and irreversible. I want to also add that maybe this only can happen because anything you get into, you need to have an organised way of reaching there. A simple example is that this year we have seen a huge improvement in property rates. But if you really see, it is based on the data which the industry has compiled with the insurance bureau. Now, this bureau could not have gotten set on day 1. So in some sense, if people have to reach a certain stage of maturity and profitability, this can only happen when you start constructing this piece by piece over a period of time. Eventually some people within that will take the lead and others are very likely to follow.
Bhaskaran: I want to talk a bit about standardizing disclosures here. If you have been in the industry for some years, could you look at standardizing disclosures?
Vaidyan: Listed companies have more disclosures. If you go to any company's website, you get all the information. But I think listing in a way has changed the way we do business and that we have to admit. Even before the listing happened, lot of market corrections were happening; so it's basically the company's philosophy that drives it. So that culture had come in and market corrections are underway even now and listing has put some pressure that is anyway right because we are answerable to a lot of investors about the way we do business. So I think if you see the results, most of the companies have also done that and there has been an improvement. Like Victor Hugo said, there is nothing more powerful than an idea whose time has come. And I think this was the time we all were actually waiting for. The market needed to move to underwriting profits and I think that is happening.
Dasgupta: If I can just add to the point. There are all the NL1 to NL40 forms that we have. All of us have that on our website. It's just that a lot of them may not be aware and lot of them may not be interested. Now when you are listed, every analyst and most good investors are going in and finding some information out and grilling you. So that is one of the reasons why there is awareness because you are a listed entity. That is one aspect. The second aspect which is probably a larger issue is that we have a set of disclosures and it is a very positive development in our opinion over the years because disclosures bring in a lot of discipline on all aspects. And I use the example of customer grievances as one of them. The question is, as an industry are we ready for next level of disclosures, whether it is unlisted or listed? Now disclosures could be in terms of your health of the company, or in terms of more granular information about customer service. One of the points that we always raise is that if you look at one of the parameters that everyone looks at is how fast you settle your claims. Now let's look at each segment level. If you look at health, we will give you one number which does not tell you the difference between how well we are serving the retail customers and how well we are serving the corporate customers. And that's a good disclosure to have because the customer segments are different. Now let's say that your readership is potential retail customers who will be interested in buying a health insurance. They should ideally be aware of what is the experience of a company who has more retail customers. So these are all the nuances. So we need the next level of disclosures and it's not so much lack of disclosures from the unlisted companies. One of the issues that we face and we see because every company looks at other company's disclosures is some amount of lack of consistency in definitions and how we interpret those definitions and those things can be streamlined as we go along.
Bhaskaran: One of the things we decided to do three years back when we were rating health insurance plans was to reach out to companies and ask them for their retail level claims settlement data. A lot of companies didn't get back to us and a lot of them said they won't give it to us. They said we should take whatever is available in the public domain. So again, I am going to ask, do you think the next level disclosure is an idea whose time has come?
Jacob: Each of us do comparisons and all of our boards have people who understand insurance and comparisons are sort of mandated at a board level quarterly. So where do we get the information from? We go into other company's websites and the disclosures are a tool for us. In terms of the next level, of course, as the industry matures, we need to get deeper and deeper and the example which you quoted is absolutely relevant while health insurance is usually clubbed as a one piece but there are so many cuts to it. Today, it's just not retail and group. Deeper and deeper cuts is possibly what the industry needs at this point of time and I am so glad that there are media houses like yours which actually ask for that information and that makes us think and I am sure that all of us have that. It's just that some of us are prepared to share it and some others are not. But I personally think that's going to be the next wave we are going to get into, that is, detailed disclosures which are a welcome move.
Bhaskaran: In the non-life sector, we know that health insurance has become very popular but still, people are not insured enough. You have insurance from your employers or if you've bought yourself, the cover is not enough. Then motor insurance, because of its mandatory nature, people have motor insurance but even then there are large number of vehicles plying uninsured. When I look at past years, there is one catastrophe after another—Uttarakhand floods, J&K floods, Chennai floods, Kerala floods and now cyclone in Orissa, and yet, home insurance is not popular. When I look at home insurance, I find the product a little complicated but why do you think other kind of policies from the non-life segment are not becoming popular?
Sinha: Unfortunately in India, I have always maintained that insurance is not bought, it is sold. And you talked about motor insurance probably the mandatory thing which is third party liability, people buy in the first year and thereafter forget to renew it. As far as health insurance in concerned, till Ayushman Bharat did not come into the picture, the portfolio was 30% in terms of the population which was insured. Even with Ayushman Bharat coming in now, it's just about 50% of the population which is covered which means there is still so much to do. So probably, as a fraternity, we need to sell ourselves, advertise, tell people like the way mutual fund companies have done and I know there is something in the offing. But everybody needs this at a small cost and if I can add, we probably would also want to say that we are not such bad fellows as we are made out to be.
Dasgupta: I think if you look at different product categories, we've seen a lot of interesting products out in the market. Something you haven't talked about, the bite-sized insurance which we call sachet products. If you look at mobile insurance products and retail cyber policies, there are lots of different categories that have come through. One category which hasn't really taken off to the extent it should have is home insurance. There is no debating that. My reading of the home product is that it's kind of derived from the traditional fire product and we've kind of structured it in that manner which is not really very retail friendly and if I look at a home insurance product, there are huge catastrophic losses when it happens; otherwise there is very little claims that you experience. So one way of looking at this is to possibly look at what are the real concerns that today's customers have and have we designed a product that addresses real concerns of today's customers beyond just a catastrophic event. I think as an industry we've not done that well. Secondly, you made the point about distribution and awareness creation; one of the things that we need to do is creating trust. My sense is that most home owners know about insurance, they probably have a motor and health insurance but they are not thinking of buying a home insurance and as an industry we need to ask the question, why? Is it a typical Indian consumer mindset that this won't happen to me or is it because there is trust deficit between them and the insurance company? If the claim comes, it may or may not get paid in a seamless and a smooth manner. So these are things that we need to fix. One of the things we can collectively do with the banking industry is that, in a lot of markets where there are high risks, there is some amount of mandation or incentivisation in a lot of markets to buy insurance. So one of the things that we can think of doing is, if there is a home insurance, then the capital charge from the bank should come down because you're taking away one element of risk even from the banker. These are some ideas we can think about and see what we can achieve but the point is valid that there is lot of scope in home.
Bhaskaran: When we talk about increasing the penetration, you talk about different products. But a lot of it has to do with simplifying the on-boarding process. It has to do with simplifying claims management and that brings me to the point of data analytics and data sharing within the sector. Insurance industry is not very forthcoming when it comes to data sharing because there are repositories and they're still sort of struggling to get everybody on board. Alice, do you think the insurance industry is doing enough with data analytics.
Vaidyan: At this point in time you are seeing a lot of changes happening. So though it might be true to some extent that companies do not want to share their data, the data is all available on each company's website. You are also now looking at technology changes and companies that have got on to the blockchain technology platform, companies that have moved to artificial intelligence and robotics, etc. So there is a general conception that data quality in the Indian market is not very high quality but I think we have enough data to help us to make whatever changes we want as far as technology is concerned. Almost 50% of the population feels that insurance is not affordable and that is because insurance companies tend to use formula of one size fits all because all we have to go by while pricing the product is insurace industry but if we have more data regarding the various products and across various lines of business, I think that will help us to bring down the pricing to an extent that it becomes affordable.
Bhaskaran: Often when we talk to insurers, we hear that regulations are very prescriptive. You know, you have expenses on management, and you have commissions that are capped. Everything is laid down but some companies still manage to pay over and above the commission and then some companies play by the book, and sort of lose out and are at a disadvantage. So one thing that I constantly hear is that maybe the regulation now needs to become more macro, leaving the management to the companies.
Vaidyan: I think what you just said is something that we all know is happening in the market. I also feel that macro management will help but the point is that all companies don't have a level playing field in the market. PSUs are bound by a lot of constraints and private sector companies have more operational freedom. I think getting into the granularity of regulations as the market is maturing; you can leave it to the companies because you are seeing more mature players in the market. We are not only talking of companies, but also intermediaries and agents and many other players in the market. I think we are moving to that stage where we can leave it to the wisdom of the companies to have the regulations because being too prescriptive can harm companies.
Jain: With regulations, the challenge will always be that it should be contextual. You know what I would like is that the old regulations, the regulation which were created in 2000s and are not relevant need to be discarded so that the focus is only on the ones that are relevant. Regulations have to be contextual.
Jacob: Given where we are in the insurance space and so much more penetration is required, I can't see a situation where there won't be regulations. I am being practical about it; there will be but whether there is a need to continue to be micro, I don't think so. Plus I don't think the regulator is too micro to be honest. There have been opportunities given to the industry to go and talk to the regulator for changes. The regulator has always been open to discussions. I would like to see a little more of the macro. I would like to see combined operating ratio being looked at more seriously, at least the components of that. I would like to see the new approach being used for risk capital.