BerkshireInsurance.com, a non-direct subsidiary of billionaire Warren Buffett's Berkshire Hathaway, currently sells non-life insurance products to retail consumers in India through its website. In an interview with Somasroy Chakraborty, Arun Balakrishnan, chief executive officer of BerkshireInsurance.com says the company plans to enter the life insurance space soon. Edited excerpts:
Q. How will the increase in foreign direct investment (FDI) cap benefit the industry?
A. The cabinet approval of 49% FDI in insurance is definitely a very positive sign, though we still need to wait and see whether or not it gets cleared by the parliament. Nonetheless, it indicates that the government recognises the capital requirements of the insurance industry and is taking steps towards bridging the capital gaps by an increased FDI limit. The benefits of the increased FDI, if approved by parliament, would be seen more in the long-term than in the short-term. Most of the prominent insurance companies have a presence in India and will be able to augment their shareholding. This in my opinion is also a window for the Indian promoters to exit the insurance businesses if they feel it is not a part of their core growth strategy. Broadly this would tend to an environment, which consists of shareholders who are willing to invest and to stay committed to the Indian insurance growth story.
Q. What are your growth plans?
A. Entering the insurance segment is by nature a long term commitment. The aim has been to build a sustainable model and offer great value to the customers while ensuring a robust structure is in place to handle any claims, queries or concerns. Our immediate goal is to get as many products as possible online, so that these can be purchased instantly. There is a paradigm shift occurring in terms of how insurance is viewed in India. Till recently, it was viewed as a tax saving instrument or a legal necessity. However, nowadays more and more customers have begun to understand how significant role insurance can play in their lives. We wish to help this segment grow by offering the best products and services at competitive prices. Our plans in the foreseeable future are going to be focused on building a strong base while constantly innovating in terms of products and process. We want India to develop into one of the highest consumers of insurance products in the world and this I believe would only be possible with a growth in the direct or online insurance sector. We started operations with motor (four-wheeler and two-wheeler) insurance in March last year. Since then we have expanded into international travel insurance and health insurance. The coming years will see us expand our presence across multiple insurance lines, thus offering a full range of insurance products to all our website visitors and customers. The going will be tough but no more than expected, and I believe that the industry in India has a lot of potential left in terms of growth and penetration and this would continue to drive us.
Q. When do you plan to enter the life insurance space?
A. We already have a license for life insurance with our current partners, Bajaj Allianz and we are looking to actively enter this space. We are internally gearing up in terms of product positioning, operational requirements, training and marketing to enable us to launch our online life insurance business. Currently the life insurance product which is sold online is term insurance. The current focus of a customer while buying term insurance is predominantly the premium he is paying. While premium is an important factor in term insurance, a more important factor is the claim servicing capability of the insurer. Essentially, if you are buying a term product for 30 years you need to be convinced that the company has the financial stability to be around for 30 years. We believe we need to educate and help customers evaluate this before making a purchase decision. We have spent the past year carefully understanding the online insurance sector and we believe this would give us a definite edge in servicing this segment. You should be seeing us joining the life insurance side soon.
Q. One of your focus areas is travel insurance. Is it gaining popularity among Indian travellers?
A. The awareness amongst Indian customers is increasing day by day. Travel insurance offers cover for a host of travel related perils as well as health and medical requirements that may arise during your travel. With the average Indian now travelling internationally more often than they did five years back, we clearly believe that this is a segment that will pick up. It is also the duty of insurers to let the customer know the benefits that a good travel insurance policy offers so that customers have access to all information before they take a decision. A combination of increased awareness and exposure has definitely led to an increase in the number of Indian travelers looking for appropriate insurance. While the overall penetration of travel insurance remains low as compared to developed markets, there is a marked year-on-year growth in this segment.
Q. What are your views on the draft on standard insurance product for rural and social sectors?
A. This is a good move to attempt greater reach and affordability of insurance for low income groups. In India, even today the insurance penetration is only around 6% of the total population with 4.40% in life and just 0.71% in general insurance. Insurance Regulatory and Development Authority's proposed draft on standard insurance products looks to deepen the market and enable inclusion. However, further clarity is needed on the guidelines for implementation. The main challenge will be developing and sustaining a viable distribution network. In underpenetrated areas, distribution and premium collections costs would escalate making it difficult to offer the products at a nominal cost. One way this issue could be tackled is by building a robust online distribution and payment infrastructure specialised to meet the needs of the rural population, along the lines of what e-choupal has successfully implemented.