 "Bhargav Dasgupta")
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ICICI Lombard, the general insurance entity, says it is building more outreach in rural areas. Bhargav Dasgupta, managing director and chief executive officer, talks to M Saraswathy on this and growth plans. Edited excerpts:
The sector has been adjusting to many new regulations. Do you see that impacting growth?
The regulatory changes were largely driven by context changes and most of it was positive. The key driver for sectoral growth is underlying economic growth. If real gross domestic product growth is seven per cent, the sector will grow 2.5-3 times that. The new regulations are aimed at opening of the distribution side, to drive penetration.
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Banks have been asked to open up to more insurers. Do you see that happening?
It will take a bit of time. In the next few years, we will see more and more banks opening up to a multiple corporate agency structure. This is good for customers and the sector. Each insurance company might have strengths in some areas and as banks tie-up with more insurers, they will see value in each of the companies driving certain segments' business for them. In the long term, it will be positive.
In the past, ICICI Lombard has been active in government health schemes. Will social insurance schemes continue to be a focus?
We have always kind of tried to play a role in the social inclusion segment. We believe this is one way of expanding the insurance market overall, as also because genuine social need is in that segment. On the Pradhan Mantri Fasal Bima Yojana, we have been a large player in crop insurance schemes and will continue to focus on that. We have been a big player in the Rashtriya Swasthya Bima Yojana as well and as and when a new structure of the health scheme as announced in the Budget comes, we will participate. We are also looking at building outreach in these markets beyond social insurance schemes. It is not easy because small-ticket products have distribution costs to manage. We are focusing on partnering with cooperative banks and seed companies in those regions, so that we can enter the market in a cost-effective way.
It has been almost a year since long-term policies were launched in motor insurance for two-wheelers. The response?
The regulator allowed long-term motor products with up to three years duration for two-wheelers. If you look at the segment, the policies are small-ticket. Here, the challenge was to reach out in a cost-effective manner, as the ticket size was very small. For customers, it was a bit of a supply issue because nobody was reaching out to him to provide the cover. Now, you can buy it once and forget the need for renewal over the next three years. There was more interest from distributors to sell the product because the ticket size was bigger. The product has seen tremendous traction. We reached Rs 100 crore, fastest in the sector in this product; we crossed this in nine months.
The valuation of ICICI Lombard has been one of the highest in the sector. Has it helped set new benchmarks?
We are very pleased with the valuations. The stake sale of nine per cent that happened was at a valuation of more than five times the book, quite a benchmark value. It reflects the sense of opportunity in the Indian market. Within India, general insurance is clearly being seen as an opportunity segment. Our valuation is a reflection of the franchise we have been able to create.
Is listing the next logical step? Will we see any insurer listing in the near future?
It is a decision of the shareholders. We very strong in terms of solvency and have adequate capitalisation. But, it might not be around the corner. The Act has been passed and gives flexibility on the type of investors. The budget announcement of listing of public sector general insurers is a good signal and would give good visibility to the sector, as these are larger companies. In the medium term, we will see at least some companies listing.
Underwriting losses are still on the rise. Do you view it as a challenge?
It is a big challenge. If the management focuses on profitable growth, you will see behaviour change. Key players should focus on this. For this, you can select some pockets of business which might reduce the burden of underwriting loss, and that is what we are trying to do. That is why our combined ratio is significantly better than the sector's. Additional disclosures on quality of reserving could be considered.
Incentives and disincentives should be looked at to deal with underwriting loss. If a company has a high combined ratio, there could be a higher charge on capital or they should provide higher solvency. These could be ways of nudging the sector.
