The Hindu Business Line : ‘Prudent underwriting has helped us earn profits’

Chennai, Aug. 27 Bajaj Allianz General Insurance has been making underwriting profits for a couple of years (see table) and is so far the only company do so among 12 players. Mr Swaraj Krishnan, CEO, Bajaj Allianz General Insurance, talks to Business Line as how the company managed to make uninterrupted underwriting profits (profits earned only from insuring risks and does not income from investments).

Mr Krishnan joined Bajaj Allianz in 2001 and was handling reinsurance and claims as General Manager. Mr Krishnan is an alumnus of Delhi University with Economics Honours. He is also an Associate of the Insurance Institute of India.

How has Bajaj Allianz General Insurance been the only player to make underwriting profits so far?

Our objective is to balance growth with profitability. We have been able to manage underwriting profits for the last few years is due to prudent underwriting of risks, strict control on expenses, increasing productivity per employee and professional handling of claims.

Could you amplify on this some more?

Yes. When I say prudent underwriting, I mean that we never accept business for the sake of topline growth. We have very stringent norms of assessing risks and we accept a business only if the risks are acceptable. …

But isn’t that what every company is expected to do? What is it that Bajaj Allianz has done uniquely?

Well, there is no unique mantra. We are very careful in accepting business. We also monitor expenditure very strictly. Over commissions we don’t have any control. But we keep distribution costs under strict control.

For example, for health insurance, we do not go through ‘third party administrators’. We deal with the hospitals directly.

In a de-tariffed environment, when the premium rates have fallen sharply, can you afford to reject business?

We can and we have done that. But it is more a question of assessing risks than of pricing. Even if we get a good price, we will reject a proposal if we feel that risks are high. Besides, ‘low prices’ is more a corporate phenomenon. We have a large retail portfolio.

What percentage of your business mix is retail?

About 70-75 per cent.

Would it be fair to say that it is because of your high retail portfolio, you have been able to make underwriting profits?

Not really. In retail also, we are very selective about accepting business. For example, we do not insure certain models of cars.

You said you do not work with TPAs (Third Party Administrators) in health insurance. What is the contribution of ‘health’ to your business and how has been your experience?

Health contributes about 11 per cent. We find individual health very profitable, but group health is making losses. We have in-house TPA called Health Administration Team (HAT) – to administer hospitalisation claims.

Does it matter whether an insurance company makes underwriting profits, as long as it makes any profit?

I would say making an underwriting profit is a pre-requisite for insurance business. Insurance companies cannot be run on returns accrued on investments in the long run because their primary function is to assess and underwrite risks prudently. As an insurer I should be able to underwrite risks judiciously if I want to honour claims and remain in the business for long time.

Bajaj Allianz General reported underwriting losses last year, when motor pool was included in 2007-08. How confident is Bajaj Allianz General in reporting underwriting profits this year when the industry seems to be undergoing a challenging phase?

We made underwriting profits of Rs 19 crore in 2007-08 (without the motor pool-`Motor Pool' is corpus which all insurers have to contribute mandatorily depending on the claims; each insurer will share it depending upon his market share)

However with de-tariffing (free pricing) since 2007, when motor pool was introduced due to which we incurred an underwriting loss of Rs 21 crore. Yes, there is severe price competition among players this year, but we are positive that with rational underwriting and risk assessment we would make profits.

How do you see the motor pool?

If the objective of setting up motor pool was to reduce major losses of the insurance industry, then it has failed. Earlier insurers were only burdened by their own claims portfolio, but with the motor pool they collectively undertake the entire losses of the industry depending on their market share. When a risk is not assessed and underwritten properly, every company is paying the price for it.

What has been the impact of detariffing?

De-tariffing has just been "de-pricing" which has led to a fall in premiums of property insurance and car insurance. This has led to a cut-throat competition among players to garner market share. Still as an insurer I cannot provide an insurance cover depending upon the capacity to pay by different segments of the population. The last stage of de-tariffing would be to give freedom to insurers on policy wordings which was expected this year but has been postponed currently.

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