'Our exposure to the market is minimal'

Q&A: Vishakha Mulye

The “rough patch” the insurance industry is going through because of detariffing and accentuated by the general economic slowdown, is bound to continue for some time. But, the low insurance penetration in the country presents high growth potential in the long term, Vishakha Mulye, executive director, ICICI Lombard — the largest private-sector general insurance company in India — tells Vandana Gombar in an interview. Excerpts:

Given there are 20 players already and some larger ones (read State Bank of India) expected to enter shortly, how do you defend your leading position?
In the general insurance sector, there are 2-3 success factors. One is capital and coming from ICICI Bank, the largest private sector bank in the country, and Lombard, I am confident capital will be available to the company.

Would capital still be available, considering that ICICI Bank is part of a system that is facing a major liquidity crunch?
I think it is temporary. When one talks about strategy, it is not for one or two years but 5-10 years. So, in the long run, I have confidence it is a strong bank and we will be in a position to support the company. I don’t see capital as an issue.

Anyway, according to regulation, we will have to look at listing this company after 2011. That is on the cards and then, the markets are not going to remain the way they are today. Being the largest private-sector player in this space, I don’t see it as a problem to approach the market at an appropriate time to unlock value.

In your opinion, how many general insurance players can a the Indian market sustain?
There is scope for more players to enter the Indian market. Markets such as Singapore, the UK and the US have a significantly large number of general insurance companies. Given that the general insurance penetration accounts for just 0.6 per cent of the country’s GDP, the industry’s growth potential is immense.

How is ICICI Lombard different from the others?
The entire expertise on the product and technology side makes us different. This is, after all, a risk business and one needs to understand the risk in the market well. So, underwriting standards is something that counts. We have developed them over a period of time to ensure pricing that is commensurate with the risk.

With the problems existing for detariffed products in the market, how much flexibility do you have in exercising this underwriting expertise?
One cannot go ahead and dictate the price in the market today. But, I think this expertise is important to choose which risk you would like to pick up. Being in a business where we have to take risk, we can’t shy away from it, but, what we need to ensure is we pick up the risk at the right price. In the current market, one may not be able to dictate prices but you can actually stay out of some segments which is itself a competitive advantage.

Are we out of the rough patch as far as detariffing is concerned?
I would say it might continue for little longer. In every other economy, when detariffing happens, most companies use price as the only measure for gaining market share till they realise it is not sustainable. In many economies, the market has degrown. If you look at growth, the general insurance industry has grown 30 per cent a year traditionally. Last year, the growth was 12 per cent. That means we did not degrow but we grew slower. And because it is an underpenetrated market, we still have a large number of players coming into the market. So, I don’t see our industry degrowing.

Have expansion plans been scaled down or deferred by the global slowdown?
Our expansion schedule continues as per plan. As I mentioned, the general insurance penetration accounts for just 0.6 per cent of the country’s GDP. There is clear potential for robust growth and we intend to leverage this opportunity. We have the financial capital, technology, distribution and brand to do this.

What is the mark-to-market loss that you are looking at so far?
Our exposure to market is minimal. We have made all our investments from a long term perspective

What are the exotic products in the pipeline?
ICICI Lombard has round 80-plus products in the market. About a third of our business comes from the motor insurance segment, another one-third from health and another 30 per cent from corporate. The rest comes from products in areas such as home, travel and others.

We have launched a new product which provides extended warranty on cars and two-wheelers — the product covers mechanical and electrical breakdowns post the expiry of manufacturer’s warranty on the vehicle. We are looking at extending this product to other market segments in the near future. We have also received Irda approval for a top-up health insurance product, which provides coverage of the medical expenses incurred in excess of the deductible amount per episode of hospitalisation.

Do standalone health insurance firms have an edge? Going forward, would you separate the health business?
There was a view that health should be separated. My belief is that it will be suboptimal. Though the product is different, the technology is the same. Channels through which you sell health is also more or less the same.