ICICI Lombard’s digital push overshadowedby other concerns
2 min read 29 Mar 2023, 10:23 PM ISTThe stock’s performance has been unimpressive lately. In 2023 so far, its shares have declined by around 13%, a steeper fall than sector index Nifty Financial Services.
PremiumICICI Lombard General Insurance Co. Ltd at its 2023 analyst meet held recently showcased its continued thrust on digital product innovations and partnerships. The aim is to improve customer experience, reduce the risk of frauds, explore cross-selling opportunities, and improve penetration.
It looks like some of these efforts are yielding results. For instance, its healthcare app ILTakeCare has seen around 4 million downloads in FY23. In the motor insurance segment, its offerings Pay As You Drive and Pay How You Drive are gaining traction.
The expenditure on technology will have a P&L impact of 1.5-2%, the management said. While tech investments could weigh on the company’s profitability in the near term, in the longer run, it is likely to prove beneficial by driving premium growth. “We think Lombard’s consistent investment and data collection can develop into an underwriting moat. For instance, its P&C (property and casualty) risk solutions for corporates (25% mix) has led to market share gains," said analysts at J.P. Morgan.
ICICI Lombard’s management has guided for a combined ratio of 102% by FY25. A combined ratio above 100% indicates the company is paying more claims than receiving premiums. In the December quarter, ICICI Lombard’s combined ratio stood at 104.4%. According to analysts at Emkay Global Financial Services Ltd, “ICICI Lombard continues to report a materially better combined ratio than the overall sector (and even the private sector’s average)." However, everything is not hunky dory. “Given the hyper-competitive market environment on the pricing front and on the distributor payout front, it is aiming for a combined ratio of 102% by FY25 (FY23E: about 105%)," point out the Emkay analysts. This is slightly worse than pre-pandemic ambition of about 100%, they added.
Meanwhile, the stock’s performance has been unimpressive lately. In 2023 so far, its shares have declined by around 13%, a steeper fall than sector index Nifty Financial Services.
Analysts note that ICICI Bank’s 18% stake reduction, which is likely by September 2024, remains an overhang for ICICI Lombard stock. The stake sale was in the backdrop of Bharti AXA General Insurance Co.’s merger with ICICI Lombard.
That apart, investors would also wait for clarity on the company’s succession plan. Jefferies India analysts have maintained their earnings forecast for the stock, but they note that as per the indicative norms, the company’s chief executive officer may need to retire in May 2024 when he completes 15 years. So, this is a crucial factor to watch out for.
