Warendra Sinha, managing director and CEO, IFFCO Tokio General Insurance, who has worked in the industry for over three decades, believes that the recent draft regulations by Irdai on motor insurance will make it a more customized and flexible offering. He also spoke about how insurance is still a push product due to lack of awareness, especially in the general insurance category
What do you think about the new draft regulations on motor insurance? Will they impact premiums?
The draft proposals on motor insurance are likely to change its structure from the current model. The thrust is towards customization which will enable covers like “pay as you drive" and “usage-based policies". It will be in line with the developed economies where premiums depend on factors such as usage of the car, the driver’s profile and gender, among others. So the premium will depend on how often you use your car, whether you drive your car to the office or use it only for pleasure trips, how fast you drive, your car’s model, your age and other such factors. For example, as per the new draft regulations, you could also buy a policy to cover only your weekend driving. Such plans will cost less compared to the annual premium. This can be achieved by telematics that tracks the driving behaviour of a person for arriving at customized premium rates.
The draft rules also include add-on covers. Right now, there are add-on covers such as personal accident insurance for the driver and passenger. Once these proposals are finalized, we can have add-on covers such as medical insurance in case of an accident. We are deliberating on these proposals internally and within the industry.
Why are products such as home insurance not becoming popular even as natural disasters are only going up?
Unfortunately, in India, the awareness about insurance is very low. This explains lower penetration. If you look at the overall penetration of general insurance, it is currently just 0.94%. Insurance is still a push product in India.
Before Ayushman Bharat Yojana was launched, only 30% of the population had any kind of health insurance. Even though motor insurance is compulsory, around 50% of the vehicles were not insured. Now, thankfully, after the new Motor Vehicles (Amendment) Act, 2019 under which penalties have been increased, more people have started buying motor insurance and we expect the numbers to go up.
Home insurance is still on low priority in spite of the fact that we have witnessed various natural calamities, mostly due to lack of awareness. There is certainly a need to make people aware about the various insurance products. To address the issue, the General Insurance Council is planning to come out with an awareness campaign in two-three months.
Pollution levels are rising in the National Capital Region and some other metros and tier II cities. Can that impact premiums in the future?
It will certainly have a bearing on health insurance premiums if the problem continues to persist. But we will only be able to tell you about the quantum of impact after we have the data to show how much of the claims have increased during that period.
Do you think lack of data is a serious impediment? Insurance and underwriting depend on data gathering but is the insurance industry mature enough when it comes to data gathering and filtration?
It is an issue right now as people generally don’t update their insurance company about any changes in basic information (such as email and phone number). But we think data gathering will improve going forward, especially with the use of telematics, wearable devices and the proposal for Aadhaar-linked KYC. It has also been suggested to have a central repository of telematics data, where data from various sources can flow into a common pool. Such measures will help the industry in improving data gathering and filtration.
Can bite-sized covers help increase the penetration of products such as home and liability insurance?
Bite-sized insurance policies basically provide a smaller cover, come for a short tenure, have large volumes and hence come at a lesser premium. Insurers come up with bite-sized insurance covers primarily based on the demand for such restricted and perceived needs which are different from the need for a full-blown traditional policy. For insurers, the cost for issuing such bite-sized policies is much less due to technology advancement.
To increase home insurance penetration, bite-sized policies can be sold to big businesses. Small measures like these could help a lot in increasing insurance penetration. Similarly, professional indemnity covers of small value can be sold to professionals such as doctors and actors, along with debit and credit cards.
What are the challenges that the industry faces right now?
One of the immediate challenges within the industry is to bring down the operating cost in order to keep premiums competitive. There is a lot of undercutting of premium rates by way of ridiculous discounts to garner market share. The margins are shrinking for the insurers which pose a huge challenge. I believe that we could see more mergers and acquisitions and consolidation in the industry in the future.