Q&A: Bhargav Dasgupta, ICICI Lombard GIC

'Third-party motor pool has outlived its purpose'

Amid fear of an economic slowdown, ICICI Lombard, the largest private sector general insurer in the country, collected premiums worth about Rs 3,000 crore in the first seven months of the current financial year. Managing Director and chief executive Bhargav Dasgupta tells Niladri Bhattacharya though the industry would record 20-25 per cent growth in 2011-12, third-party motor pool losses would hit profitability. Edited excerpts:

What would be the growth seen by the general insurance industry this year?
As far as the top line for the whole year is concerned, the industry should grow at 20-25 per cent. Though the current scenario has raised short-term concerns, in the medium term, we continue to remain optimistic on the overall growth for the industry. Over the next five years, it should continue to grow 20-25 per cent yearly. From the profitability perspective, certain policy level changes would have an impact on the industry. One would be the effect of the final provisioning number (on account of the commercial third-party motor pool). We will know this soon, based on the peer review.

The Insurance Regulatory and Development Authority (Irda) has indicated provisioning would be raised by 175-205 per cent. What impact would this have on the industry?
I don’t want to speculate on numbers. When there was an increase, there was a way to handle that. This time, too, when we know the final numbers, the industry would come up with an approach to handle the increased provisioning. We would then be able to assess the impact. Whatever the approach, the industry would need capital, and this would hit profitability this year.

What are the key concerns surrounding the motor pool?
The fundamental problem with the entire pool is three-fold. One, the under-pricing of that risk — even the 68.5 per cent rise last year was not adequate. Second, the pool has outlived its purpose and is actually becoming a drag for the industry. The third issue is the Motor Vehicles Act, which needs to be amended. The Act says claims can be unlimited, and can be filed anytime. Both these clauses need to be capped, since at the end of the day, a delay in the claim intimation leads to frauds.

Do you think dismantling the pool is the right way to go about it?
One of the things happening with the pool structure is there is a lack of ownership, which is leading to inadequate focus on proper claim management and fraud control. Solutions are being discussed — either a dismantled or a declined pool mechanism would be a step in the right direction. I am sure Irda would come out with a scheme that meets all stakeholders’ objectives in a fair and equitable manner.

Do you think these issues would turn foreign investors away from India? Do you see any consolidation in the industry?
Global insurers are still willing to enter the Indian market, because this is a market which, over the next five-10 years, would continue to show significantly higher growth than the rest of the world. Though I don’t see any consolidation, there could be some changes, in terms of ownership structures. I do see some more companies coming in the sector.

How do you manage to be profitable in the group health business, given the loss ratio in the industry is over 100?
On the industry level, the main issue on the health portfolio has been group health pricing. Though it has been a bleeding portfolio, we, as a company, run the same business and it is profitable for us. So, it a question of how you price the risk and select customers. One of the things we have focused on is managing claims in-house, and this has given us a significant benefit of better claim service, better customer service and loss prevention, in terms of fraud controls. We also provide a few value-added services like health risk management.