If claim spike sustains, it'll have repercussions: ICICI Lombard MD & CEO

For corporate policies, we have taken some price increases, says Bhargav Dasgupta

While the Covid-related health claims have seen a decline, the non-Covid claims have spiked for non-life insurers, posing another challenge to the sector. Bhargav Dasgupta, managing director and chief executive officer, ICICI Lombard General Insurance, spoke to Subrata Panda on the hit the insurance industry had taken due to Covid, the spike in the average claim size, pickup in the motor insurance segment, and the focus areas of the company. Edited excerpts:

Is the worst over now as far as the Covid-related health claims are concerned?

We are hopeful, given the pace of vaccination, that we would not see a spike like what we saw in the second wave. The caveat is that we do not get to see a new mutant. We have to watch the situation. The Covid claims were unanticipated, and we did not budget for them, or price for them. Unlike most industries that were affected, we did not go to the Central government for support. Last year (FY21), we had about 1 million intimated claims for Covid. This year (FY22), in six months, we got about 1.6 million claims. Our sense is that the industry has paid Rs 25,000-30,000 crore for the Covid-related health claims.

How concerned are you with the average claim size going up in the recent period?

The worry is that the non-Covid claims are spiking. Other types of infection this year have been bad —dengue, malaria, etc. Elective surgery cases have come back strongly. More importantly, the average claim size for each of these diseases has gone up a lot in the past two years. The elective surgery spike could be temporary. But the average claim size spike is structural. If I compare the present cost to what it was two years ago, there is a 20 per cent increase. If this sustains, it will have some repercussions on insurance premium.

Is there a need to raise health insurance premiums?

If the rise in the non-Covid claims stays elevated, we will be forced to revise premiums. For corporate policies, we have taken some price increases. 

Is motor insurance segment out of the woods now?

We are seeing good demand on the private car side but there are supply-side constraints. While there are no supply-side issues in the two-wheeler segment, the demand seems a bit tepid, which is surprising. On commercial vehicles, we are seeing good pickup. Overall, in the motor segment, the underlying demand seems to be recovering. On the third-party premium hike, traditionally, the regulator looked at the data and gave a price increase every year because there is a claim inflation, which is linked to wage inflation. In the past two years, we have not seen a price increase, which has created some pressure for the industry. On top of it, in this period, there have been some court judgments, which are further increasing the claims severity. We hope we will see some increase from the regulator’s side.

 Motor remains your predominant business but given the demand health insurance is seeing, would you not want to focus more on health?

It is not that we are focusing less on any segment. I think relative to the overall market, our share of health is small. So, health is a bit of catch-up for us while the motor and commercial lines remain strong pillars of the organisation. So, we are investing a lot more in the health segment.

 Which are other segments you are focusing on?

We remain optimistic about our corporate business, including small and medium enterprises. The underlying investment in infrastructure and capital formation seems to be coming back strongly. Also, marine insurance, which shows goods movements, is picking up. The motor and health segments will remain key areas. There are new categories of products that are coming to the market on the insurance side. For example, there is a drone policy the government launched, and we are excited about it. The cyber liability risk is still under appreciated and that is an area of interest for us.

 Irdai has brought a number of standard products in the non-life space. How feasible is it for insurers to sell these products?

Some of this is positive. We were supportive of the standard health indemnity product the regulator launched because in a segment where there is a huge requirement for education and awareness creation, a standard product helps. But if you take it to another extreme then that becomes a bit of a challenge because it will stifle innovation and create unnecessary competition.

The non-life penetration has hardly moved in the last 20 years. Is this the inflexion point for the industry now?

Globally, the non-life sector penetration follows a hockey stick curve. It’s like an S curve – very slow increase till the GDP per capita income reaches $2000, post which it suddenly spikes and plateaus after that. We are at that inflexion point and we should see a rapid increase in penetration.

Will we see more consolidation in the sector?

We are seeing two trends. One is the natural tendency of migration of value towards 4-5 companies. At the same time, right now we are seeing a lot of interest in the sector. There is a lot of capital that is coming in. There are changes in the shareholders in some of the companies and that is preventing the consolidation in the sector at a pace it could have happened otherwise. In the medium term, I still believe it will be a consolidation story, moving to 4-5 players who will deliver more value.

Is the growth in the health segment sustainable?

There are two things: one, there is a base effect of last year. Last year the demand for health insurance shot through the roof and that base effect will be seen this year. So, this year, we may not see that kind of growth. But, having said that, we are seeing a structural shift in terms of people's awareness of the health care costs and the need for health insurance. So, there are new to market customers coming in. And the existing customers who are increasing their sum insured.

How much of a drag short term covid related policies have been on the loss ratios? Does it make sense to continue such policies?

At that point in time, we felt, given the low penetration of health insurance in the country, it was appropriate to provide something for the customers, even though it was risky. Subsequently, the regulator asked all the insurers to offer covid specific products. All of us (insurers), I am sure, would have lost money in this segment. As we speak, the demand for covid specific products is not very high.

The digital only insurers and insurtech firms are doing pretty well. Is there any pressure from these new age insurance companies?

You have to be where the customer is. India is a very nuanced and diverse market. So, we have built a multi-channel model. Today, around 97 per cent of our policies are paperless. We don’t believe that pure research online and purchasing online segments can scale up as much. Having said that, we are investing very heavily on the digital side.

ICICI Bank’s stake in Lombard has gone below 50%. Does the bank plan to take it 30% because of RBI’s norms?

The banking regulation act does not allow a bank to hold between 30 – 50 per cent in a subsidiary. So, now that it is at 48 per cent, they have to bring it down to 30 per cent. They have got a specific dispensation when it comes to the time period. They have to do it by September 2023.