The Hindu Business Line : Bracing for challenges

From a tiny acorn to a great oak. That old saw just about sums up the history of National Insurance Company Ltd, which has recently completed 100 years in the midst of remarkable developments witnessed by the country's insurance industry, especially the state-owned part of it.

A quick look at NIC's annals will tell an observer how the company has morphed into what it is today: A network of about 1,000 offices, foreign operations, a wide range of policies and so on.

Cut to the insurance nationalisation legislation of 1972, which finally led to its subsidiary status vis-à-vis General Insurance Corporation (GIC). NIC is now the `oldest existing insurance company' in India, dealing in general insurance businesses — fire and marine, two big chunks of the sector, included.

Client list

Let us now check out NIC's client list. The company provides services to a fairly wide range of sectors: telecommunications, transportation, energy, agriculture as well as services such as healthcare and education.

It also calls itself a trendsetter on the bancassurance front. The reason is clear - a host of banks, including some of the better-known ones, have partnered with it. According to NIC, it is possible to derive quite a few gains from tie-ups with banks. Importantly, a customer can secure risk coverage at a single point, that is, at a bank counter.

Geographical spread

How is NIC positioned in terms of geographical spread? The company points to its presence in the east (its home, considering that Kolkata is its headquarters) and in the north, two very significant regions in terms of their potential.

Old insurance hands will probably insist that little will be achieved by an insurer unless the company follows efficient marketing policies, in tune with realities of the day. So, are there good policies in place at NIC? The answer can be found, partially at least, in the company's tie-ups with large corporate groups.

Premium income

A few figures will give you a better idea of the company's size. As NIC puts it, its net worth is over Rs 1,050 crore, complete with a "more than adequate solvency margin". The company, which started with a premium of Rs 50 crore in the early 1970s, recorded gross direct premium income of Rs 3,390 crore or so in fiscal 2004 and Rs 3,790 crore in fiscal 2005. Considering its overseas business, the exact figures stood at Rs 3,399.97 crore and Rs 3,810.65 crore, respectively.

It may be mentioned here GIC, now positioned strongly as the national re-insurer, has recently ceased to be the holding company of its erstwhile subsidiaries. The latter, besides NIC, were: New India Assurance, Oriental Insurance and United India Insurance.

ICRA assessment

Let us at this stage hear what ICRA, the credit rating agency that has Moody's as its critical shareholder, has to say about insurance companies. The rater assesses the claims paying ability of insurers — that is, expresses a view on their ability to honour policyholder claims and obligations on time. "Following deregulation, a paradigm shift is expected in the domestic insurance sector as newer players and products enter the market,'' ICRA has mentioned, adding that its rating process involves analysis of an insurer's business fundamentals and its competitive position. It also includes an assessment of its profitability, liquidity, operational and financial leverage, capital adequacy and asset/liability management method.

(Therefore, an `iAAA' rating will imply the highest claims paying ability, indicates fundamentally strong position and the best prospect of meeting policyholder obligations).

Its products

A word or two about NIC's products will make things clearer. We are specifically alluding to Personal Line Insurance, Rural Line Insurance, Industrial Line Insurance and Commercial Line Insurance. Talking only about the first, Personal Line Insurance is aimed at covering risks of individuals (and their property). The reference is to personal accident, critical illness and many more.

There is, for instance, a policy for individuals who are unexpectedly diagnosed for treatment of critical ailments, subject to conditions. A two-wheeler owner can take a policy against loss due to damage or theft of the vehicle. There is a policy for house owners, which covers various categories of risks and protects the house as well as personal effects. And, then, of course, there is Mediclaim.

Or take Industrial Line Insurance, which can be divided into project insurance and operational insurance. One of the better-known forms of operational insurance policies relates to fire.

Facing challenges

Thanks to the Government's policy on ushering in liberalisation in the insurance sector, the general insurance space has seen competition come in the shape of private-sector players. While the market has widened for all, the rules of the game are changing quite rapidly. NIC, and its other state-owned peers, will have to compete with a host of new-generation companies, some of them promoted by well-known corporate groups. It remains to be seen how NIC sustains its strengths and retains its position in the emerging scenario.

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