Financial Daily from THE HINDU group of publications
Thursday, Jul 07, 2005
Financial Daily from THE HINDU group of publications Thursday, Jul 07, 2005 |
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Money & Banking
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Interview `Unlimited liability on third party motor cover is a major problem' N.S. Vageesh
Mr Antony Jacob
Chennai , July 6 AT Royal Sundaram, now into its fifth year of operations, there is a certain sense of stability. The company, after the initial excitement of a start-up, now enters a consolidation phase. The focus has been on the personal lines such as motor, health, property, etc., with nearly two-thirds of the income coming from the retail segment. Mr Antony Jacob, Managing Director, exudes quiet confidence as he fields questions about his company. He gives vent to a certain degree of frustration and helplessness only when discussing the issue of unlimited liability on third party claims in motor insurance. Excerpts from an interview: Your profits in 2004-05 were down 33 per cent compared to the previous year. What happened? One of the main reasons for the decline was the drop in investment income. Our average yield on investments was 5.25 per cent in 2004-05 compared to 8.5 per cent in the previous year. But we have in fact broken even on the general insurance side and made a small profit for the first time (without the investment income). What are your targets for this fiscal? We are hoping to earn a premium income of about Rs 475 crore. Where is this 40 per cent growth going to come from? The growth will be from all our portfolios. We expect about Rs 220 crore could come from the motor portfolio. Would you need fresh capital for this? No. We don't need it. We are comfortable on solvency margins. How has your experience been with regard to the truck portfolio? We have been doing this for the last three years. Our experience has not been good. What makes you take it on? Can't you say `No'? The same question was asked when we launched operations, about our health and motor portfolio plans. We were asked why we were doing it when statistics suggest that both were loss-making. We have now made both health and the private motorcar segment profitable. As for commercial vehicles, we took it up as a challenge. It looks like a much bigger challenge than we expected. We have not been able to make money on our commercial vehicles portfolio. Why do private insurance companies find the problem difficult to crack? It is the unlimited liability on third party insurance. Nothing is under our control. Everything is open-ended. We have come across cases with claims that a moped has killed people! Can you believe this? How fast can a moped go? But we have to go through the legal process any way. Will good infrastructure (roads, lighting, etc.,) help mitigate the problem? Good infrastructure may not necessarily lead to better risk management. In Mumbai and Kolkata, the frequency of accidents is lower. Yes, there may be a few scratches. But they are minor. But the chances for head-on collisions are less. Whereas, in Delhi, people go fast because of better roads and often meet with accidents. The loss ratio in Delhi is high. It is very visible in our data now. Will you be charging higher premiums in Delhi? We will definitely charge higher premiums in Delhi as soon as the freedom is given. Not only us but others also will do it. They share our concern.
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