 "BS Insurance round table: 'Licences shouldn't be given for 2-3 years'")
Moderator: The Union Budget gave a significant push to crop insurance by setting a target to increase the coverage from 20 per cent to 50 per cent in two years. Is it feasible?
G Srinivasan: The best thing about the Pradhan Mantri Fasal Bima Yojana is that everyone is a winner. The farmer doesn’t have to pay a very high premium, while insurers are able to get an actuarially-priced premium. The government picks up the balance in the form of subsidy. The general insurance sector is growing at 25 per cent this year and a large part of it is driven by crop insurance. If coverage will be increased to 50 per cent in two years, the industry will grow over 30 per cent.
Bhargav Dasgupta: Since implementation of the scheme, about 28 per cent of farmers have crop insurance. We have already seen a six-seven per cent jump over last year. Earlier, crop insurance was one of the miscellaneous segments in our sector. Today, it is the third largest contributor, after motor and health.
One challenge for the scheme in the past was inability to assess the final yield because it had to be done physically. Now, there is an intention of using technology to do that in a much faster and appropriate manner, which is much more sustainable.
Moderator: The monsoon was good last year but we had drought for two years before that. Also, land holding is scattered and fragmented. How do you surmount these problems?
Dasgupta: Both are challenges because you are talking about 600,000 villages with average land holding of less than a hectare. That is why this scheme is designed not at plot level but on an area basis.
Today, it is possible to use technology to map or tag a plot and using satellite imagery, visualise what is happening to the crop. The next level is using the images to decide the final yield of a plot. It’s very difficult to figure the exact yield and that’s the next level of challenge to be surmounted.
It’s not a product that will have a smooth pattern. It will be volatile, in terms of profitability but that’s what general insurance is all about. In bad period, like the previous two years, the industry paid for huge claims and in a good year, you hope to recover. Over a period, you hope to make it sustainable.
Moderator: Where will growth for life insurers come from? Was there any impact of demonetisation?
Arijit Basu: Life insurance has been doing quite well, with 12 per cent growth in FY16. This year has been particularly good and not only due to demonetisation. Even before November, the sector grew at 20 per cent-plus between April and October. At present (the Business Standard Insurance Round Table was held on February 17), the impact of demonetisation is not that visible but we feel in the medium term, it should be positive. A lot of savings are coming into banks and customers are looking for opportunities. The overall outlook is good, as we are able to reach out to newer segments. We are now getting a lot of traction from tier-II and tier-III cities.
R M Vishakha: When we talk about life insurance penetration, we look at the number of customers who are insured. But, when we talk about industry figures, it’s a combination of individual and group. If you have to align the two, then individual is growing even faster – 44 per cent year-to-date growth, primarily because of Life Insurance Corporation’s (LIC) growth at 60 per cent, due to single premium products. With private sector growth of 25 per cent, and adjusting for single premium products, the industry is growing at 20 per cent, which by itself is not bad.
Demonetisation has done a lot of good. For the first time in the history of my experience of dealing with banks, I don’t hear people talking about Casa (current and savings accounts). Since the coffers are overflowing, banks don’t want any more Casa. So, you have a mutual fund sector which is growing crazily. Life insurance has seen phenomenal growth. Whether this is sustainable is something only time will tell, as there are reports of people moving back to cash transactions.
Sanjay Kedia: The overall growth numbers are good this year. But, are we growing in all segments? Insurance outside motor and health has remained stagnant. Corporate premiums have not seen that level of jump, either because new projects have not taken off to the extent people were expecting.
Dasgupta: When you look at a 30 per cent growth, you can become complacent. If the growth is deconstructed, motor is growing roughly at 17 per cent, health is at about 22 per cent, but corporate general insurance is not growing at a double-digit rate. There are segments of business which have tremendous potential, like the home segment.
Moderator: The Cabinet has approved the listing of four public sector general insurers. When do you think the first listing will happen?
Srinivasan: It typically takes six to eight months to hit the market. We are hopeful that we should be in the market by September-October, provided the market is good. The government has made it clear insurance listing is not from a revenue point of view but for better corporate governance and more participation of retail shareholders in the fortunes of the companies.
Moderator: Digitisation is barely three-five per cent. Why is the insurance sector lagging?
Basu: Digitisation has to be looked at in its entirety. You are referring to pure online sales, which is customer-driven. The other part is what the industry is doing, in terms of offering a digital package to the consumer. Over the past two years, we have progressed a lot and it has happened with other companies as well. A large part of the process is now automated. For example, we have a system by which 20 per cent of our sales are what we call assisted. When the customer logs in, he is assisted by a distributor. After taking basic details, a need analysis is done and products are offered accordingly. Know Your Customer (KYC) is done through Aadhaar and other mechanisms.
If it is simple underwriting without medical, we are able to issue a policy within a day or two. We are also using analytics to have better underwriting and prevent frauds and improve other capabilities.
Also, on the online channel, what we find is our sales are linked to our ability to tie up with a distributor like a Web aggregator, social media channels or with Google, so that our products are positioned higher and things like that. It is still not a self-driven thing.
Vishakha: Digitisation is not picking up because we are trying to do a manual process online. Our underwriting tables or mortality tables continue to be ancient. You still want to do underwriting of a customer on the basis of the form that he fills and not on the basis of the social media profile he is willing to give you. I can get far more details about a customer, if he gives me access to his Facebook profile, rather than his filling form.
We are not thinking from a digital experience perspective. We are thinking manual processes, manual underwriting, manual forms, and converting all that into digital. We won’t get anywhere if we are going to continue that way.
Moderator: The Insurance Regulatory and Development Authority of India (Irdai) recently revised the regulations for reinsurance. The right of first refusal was given to GIC Re, then a few multinational companies and so on. What does the industry think about such discrimination?
Kedia: The order requires insurance companies seeking reinsurance to go to a shop. If that particular shop refuses, you go to the next shop and follow a particular sequence. Every time they buy reinsurance, they have to follow this sequence. This is highly monopolistic and restrictive as an approach, and will not yield a better result, either for the insurer or the end-policyholder. If this regulation is forced and implemented, it could create problems for companies in sectors like power, refinery, oil and technology to get the best coverage price. Also, some insurers might have problems in the entire reinsurance space. So, a kind of consensus or some sort of peace is being arrived at that will let the regulation to exist but not fully force it. That’s my sense.
Moderator: Irdai recently came out with a set of guidelines on the claim settlement period. Is the regulator getting too involved with details?
Basu: After the Insurance Laws (Amendment) Act came into play, one of the major clauses was that the Act should not define the day-to-day functioning of the sector. That responsibility rests with the regulator. So, post March 2015, Irdai has brought about 70-odd regulations in consultation with the industry. It is all broadly in the same direction – trying as much as possible to give the best deal to the policyholders.
Whether you should have a rule-based or a principle-based regime is a broad discussion. Prima facie, a principle-based regime sounds better. But, if something happens, the company can say that this is the way we understood the principle. Yes, there should be flexibility but to some extent, a few things can be defined.
Dasgupta: In terms of direction of regulation, the regulator did a very good thing by increasing public disclosure requirements such as claim settlement period in each line of business. Since the time that disclosure was made, the number of grievances as a proportion of the number of policies has dropped at industry level.
Kedia: Disclosure of claim settlement data is a very important metric. But, we find certain insurers are having a very different approach compared to others. Some will smartly settle small claims quickly and just not do anything on large claims. On large claims, nothing moves for several years. There has been tremendous improvement in cashless areas of medical, motor and other areas, but the general experience on both fire and liability claims has really worsened.
Srinivasan: Claims in areas like health and motor are getting settled faster. The issues are on the traditional side like fire and bigger claims, as the number of surveyors has gone down sharply. Since a claim over Rs 1 lakh needs an independent adjustor, whose availability is an issue, claims are rising. The industry has to do something about it.
Moderator: Besides public sector insurers, some private companies will also be going in for listing. While foreign partners have been allowed to raise their stake from 26 to 49 per cent, many are reluctant due to changes in the Insurance Act. Your views?
Basu: We started discussions with our partner,
BNP Paribas Cardif around March 2015 when the guidelines came and finally concluded in July 2016, when we signed the new shareholder agreement. We discovered during the process that they were a little taken aback. But, we were able to give them confidence and comfort that the current level of engagement would continue in the future. Going forward, SBI Life will go in for an initial public offering and our foreign partner has said they are with us. What we hear is, in other companies, it has not gone the same way.
Moderator: HDFC Life and Max Life have announced a merger. Will there be more consolidation in the sector ?
Dasgupta: If you look at some of the smaller markets in Asia, the number of insurers are significantly higher than in India. And, India is a large complex market. There is scope and space for more insurers. At the same time, if you look at data on the 15-odd companies that have entered the market in the past 10 years, none of them has more than two per cent market share. If you look at say five-10 years into the future, you will probably have four or five relatively large national players and a bunch of players who probably focus on one niche like health, motor or liability.
Vishakha: In the US, the number of life insurance companies in the 1950s was 649, which rose to 2,185 in 1990. In 2010, it came down to 917 and in 2015, they had 814. I am assuming we will follow the same pattern. Right now I think we are in the 1950 to 1990 period of the US. We will probably see more insurance companies coming in. If you just see the past 15 years of privatisation, it’s been one crazy roller-coaster ride. There was an entire change in the unit-linked insurance policy guidelines and now we have the Sumit Bose committee report. It would be an interesting case study for anybody to pick out all the business plans insurance companies made when they entered the market and see how many of those assumptions continue to be valid. The moment we achieve maturity in regulations, we will actually see a higher growth.
Basu: In life insurance, a similar trend of five or six companies with a national presence has already emerged, and there could be a similar trend like in general insurance. We are not looking at consolidation and the reason is that when you are on a very high growth phase, it would be a distraction, as a lot of management time and energy will be spent. But, those that are not in a high growth phase will perhaps look at such synergies.
Srinivasan: I am of the view that the Indian market is crowded at this point of time. There are too many players, both among insurers and intermediaries. What India needs is companies that are well capitalised, big and can take risks by themselves. We should not allow any player with Rs 100 crore with one person who knows insurance to start business. Maybe after two-three years, the regulator can allow more companies to come into this market.
G Srinivasan
G Srinivasan: The best thing about the Pradhan Mantri Fasal Bima Yojana is that everyone is a winner. The farmer doesn’t have to pay a very high premium, while insurers are able to get an actuarially-priced premium. The government picks up the balance in the form of subsidy. The general insurance sector is growing at 25 per cent this year and a large part of it is driven by crop insurance. If coverage will be increased to 50 per cent in two years, the industry will grow over 30 per cent.
Bhargav Dasgupta
Bhargav Dasgupta: Since implementation of the scheme, about 28 per cent of farmers have crop insurance. We have already seen a six-seven per cent jump over last year. Earlier, crop insurance was one of the miscellaneous segments in our sector. Today, it is the third largest contributor, after motor and health.
One challenge for the scheme in the past was inability to assess the final yield because it had to be done physically. Now, there is an intention of using technology to do that in a much faster and appropriate manner, which is much more sustainable.
Moderator: The monsoon was good last year but we had drought for two years before that. Also, land holding is scattered and fragmented. How do you surmount these problems?
Dasgupta: Both are challenges because you are talking about 600,000 villages with average land holding of less than a hectare. That is why this scheme is designed not at plot level but on an area basis.
Today, it is possible to use technology to map or tag a plot and using satellite imagery, visualise what is happening to the crop. The next level is using the images to decide the final yield of a plot. It’s very difficult to figure the exact yield and that’s the next level of challenge to be surmounted.
It’s not a product that will have a smooth pattern. It will be volatile, in terms of profitability but that’s what general insurance is all about. In bad period, like the previous two years, the industry paid for huge claims and in a good year, you hope to recover. Over a period, you hope to make it sustainable.
Moderator: Where will growth for life insurers come from? Was there any impact of demonetisation?
Arijit Basu
Arijit Basu: Life insurance has been doing quite well, with 12 per cent growth in FY16. This year has been particularly good and not only due to demonetisation. Even before November, the sector grew at 20 per cent-plus between April and October. At present (the Business Standard Insurance Round Table was held on February 17), the impact of demonetisation is not that visible but we feel in the medium term, it should be positive. A lot of savings are coming into banks and customers are looking for opportunities. The overall outlook is good, as we are able to reach out to newer segments. We are now getting a lot of traction from tier-II and tier-III cities.
R M Vishakha
R M Vishakha: When we talk about life insurance penetration, we look at the number of customers who are insured. But, when we talk about industry figures, it’s a combination of individual and group. If you have to align the two, then individual is growing even faster – 44 per cent year-to-date growth, primarily because of Life Insurance Corporation’s (LIC) growth at 60 per cent, due to single premium products. With private sector growth of 25 per cent, and adjusting for single premium products, the industry is growing at 20 per cent, which by itself is not bad.
Demonetisation has done a lot of good. For the first time in the history of my experience of dealing with banks, I don’t hear people talking about Casa (current and savings accounts). Since the coffers are overflowing, banks don’t want any more Casa. So, you have a mutual fund sector which is growing crazily. Life insurance has seen phenomenal growth. Whether this is sustainable is something only time will tell, as there are reports of people moving back to cash transactions.
Sanjay Kedia
Sanjay Kedia: The overall growth numbers are good this year. But, are we growing in all segments? Insurance outside motor and health has remained stagnant. Corporate premiums have not seen that level of jump, either because new projects have not taken off to the extent people were expecting.
Dasgupta: When you look at a 30 per cent growth, you can become complacent. If the growth is deconstructed, motor is growing roughly at 17 per cent, health is at about 22 per cent, but corporate general insurance is not growing at a double-digit rate. There are segments of business which have tremendous potential, like the home segment.
Moderator: The Cabinet has approved the listing of four public sector general insurers. When do you think the first listing will happen?
Srinivasan: It typically takes six to eight months to hit the market. We are hopeful that we should be in the market by September-October, provided the market is good. The government has made it clear insurance listing is not from a revenue point of view but for better corporate governance and more participation of retail shareholders in the fortunes of the companies.
Moderator: Digitisation is barely three-five per cent. Why is the insurance sector lagging?
Basu: Digitisation has to be looked at in its entirety. You are referring to pure online sales, which is customer-driven. The other part is what the industry is doing, in terms of offering a digital package to the consumer. Over the past two years, we have progressed a lot and it has happened with other companies as well. A large part of the process is now automated. For example, we have a system by which 20 per cent of our sales are what we call assisted. When the customer logs in, he is assisted by a distributor. After taking basic details, a need analysis is done and products are offered accordingly. Know Your Customer (KYC) is done through Aadhaar and other mechanisms.
If it is simple underwriting without medical, we are able to issue a policy within a day or two. We are also using analytics to have better underwriting and prevent frauds and improve other capabilities.
Also, on the online channel, what we find is our sales are linked to our ability to tie up with a distributor like a Web aggregator, social media channels or with Google, so that our products are positioned higher and things like that. It is still not a self-driven thing.
Vishakha: Digitisation is not picking up because we are trying to do a manual process online. Our underwriting tables or mortality tables continue to be ancient. You still want to do underwriting of a customer on the basis of the form that he fills and not on the basis of the social media profile he is willing to give you. I can get far more details about a customer, if he gives me access to his Facebook profile, rather than his filling form.
We are not thinking from a digital experience perspective. We are thinking manual processes, manual underwriting, manual forms, and converting all that into digital. We won’t get anywhere if we are going to continue that way.
Moderator: The Insurance Regulatory and Development Authority of India (Irdai) recently revised the regulations for reinsurance. The right of first refusal was given to GIC Re, then a few multinational companies and so on. What does the industry think about such discrimination?
Kedia: The order requires insurance companies seeking reinsurance to go to a shop. If that particular shop refuses, you go to the next shop and follow a particular sequence. Every time they buy reinsurance, they have to follow this sequence. This is highly monopolistic and restrictive as an approach, and will not yield a better result, either for the insurer or the end-policyholder. If this regulation is forced and implemented, it could create problems for companies in sectors like power, refinery, oil and technology to get the best coverage price. Also, some insurers might have problems in the entire reinsurance space. So, a kind of consensus or some sort of peace is being arrived at that will let the regulation to exist but not fully force it. That’s my sense.
Moderator: Irdai recently came out with a set of guidelines on the claim settlement period. Is the regulator getting too involved with details?
Basu: After the Insurance Laws (Amendment) Act came into play, one of the major clauses was that the Act should not define the day-to-day functioning of the sector. That responsibility rests with the regulator. So, post March 2015, Irdai has brought about 70-odd regulations in consultation with the industry. It is all broadly in the same direction – trying as much as possible to give the best deal to the policyholders.
Whether you should have a rule-based or a principle-based regime is a broad discussion. Prima facie, a principle-based regime sounds better. But, if something happens, the company can say that this is the way we understood the principle. Yes, there should be flexibility but to some extent, a few things can be defined.
Dasgupta: In terms of direction of regulation, the regulator did a very good thing by increasing public disclosure requirements such as claim settlement period in each line of business. Since the time that disclosure was made, the number of grievances as a proportion of the number of policies has dropped at industry level.
Kedia: Disclosure of claim settlement data is a very important metric. But, we find certain insurers are having a very different approach compared to others. Some will smartly settle small claims quickly and just not do anything on large claims. On large claims, nothing moves for several years. There has been tremendous improvement in cashless areas of medical, motor and other areas, but the general experience on both fire and liability claims has really worsened.
Srinivasan: Claims in areas like health and motor are getting settled faster. The issues are on the traditional side like fire and bigger claims, as the number of surveyors has gone down sharply. Since a claim over Rs 1 lakh needs an independent adjustor, whose availability is an issue, claims are rising. The industry has to do something about it.
Moderator: Besides public sector insurers, some private companies will also be going in for listing. While foreign partners have been allowed to raise their stake from 26 to 49 per cent, many are reluctant due to changes in the Insurance Act. Your views?
Basu: We started discussions with our partner,
BNP Paribas Cardif around March 2015 when the guidelines came and finally concluded in July 2016, when we signed the new shareholder agreement. We discovered during the process that they were a little taken aback. But, we were able to give them confidence and comfort that the current level of engagement would continue in the future. Going forward, SBI Life will go in for an initial public offering and our foreign partner has said they are with us. What we hear is, in other companies, it has not gone the same way.
Moderator: HDFC Life and Max Life have announced a merger. Will there be more consolidation in the sector ?
Dasgupta: If you look at some of the smaller markets in Asia, the number of insurers are significantly higher than in India. And, India is a large complex market. There is scope and space for more insurers. At the same time, if you look at data on the 15-odd companies that have entered the market in the past 10 years, none of them has more than two per cent market share. If you look at say five-10 years into the future, you will probably have four or five relatively large national players and a bunch of players who probably focus on one niche like health, motor or liability.
Vishakha: In the US, the number of life insurance companies in the 1950s was 649, which rose to 2,185 in 1990. In 2010, it came down to 917 and in 2015, they had 814. I am assuming we will follow the same pattern. Right now I think we are in the 1950 to 1990 period of the US. We will probably see more insurance companies coming in. If you just see the past 15 years of privatisation, it’s been one crazy roller-coaster ride. There was an entire change in the unit-linked insurance policy guidelines and now we have the Sumit Bose committee report. It would be an interesting case study for anybody to pick out all the business plans insurance companies made when they entered the market and see how many of those assumptions continue to be valid. The moment we achieve maturity in regulations, we will actually see a higher growth.
Basu: In life insurance, a similar trend of five or six companies with a national presence has already emerged, and there could be a similar trend like in general insurance. We are not looking at consolidation and the reason is that when you are on a very high growth phase, it would be a distraction, as a lot of management time and energy will be spent. But, those that are not in a high growth phase will perhaps look at such synergies.
Srinivasan: I am of the view that the Indian market is crowded at this point of time. There are too many players, both among insurers and intermediaries. What India needs is companies that are well capitalised, big and can take risks by themselves. We should not allow any player with Rs 100 crore with one person who knows insurance to start business. Maybe after two-three years, the regulator can allow more companies to come into this market.
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