SBI General Insurance Company Ltd, a joint venture between State Bank of India (74 per cent stake) and Insurance Australia Group (26 per cent), has been in business for nearly two years now.

Though the company is still scratching the surface of the Rs 47,000-crore general insurance market, MD and CEO Mr R.R. Belle says his company will compete not by reducing price but by offering quality products and services and settling claims in a fair and transparent way.

In an interaction with Business Line , Mr Belle, who spent 36 years in SBI before taking the helm at SBI General in 2010, outlines the way forward for his company.

Excerpts:

Business growth so far

SBI General Insurance is a very small company as of now. Like so many other international players, IAG sees India and China as growing economies. That is why it has invested quite a lot of money for its 26 per cent stake.

Whenever the law of the land permits, the joint venture agreement permits it to increase its stake to 49 per cent at the market price. When the JV was inked, SBI was into all other financial services except general insurance, while IAG was only into general insurance. So, it is an ideal marriage of two interested parties.

SBI General started operations last year (2010-11). We had very limited operations last year, about Rs 43 crore of top-line. This year we have done very well. We had a board-approved plan and we are running ahead of it as of now. We were supposed to log a top-line of Rs 202 crore for the full year. I think we should end up at Rs 225-250 crore by the end of March. Last two months of the year are generally busier than the other months.

In the case of bottomline also we are well within the board approved targets — around Rs 135 crore in losses. The losses will be far lesser than that.

Challenges

The general insurance industry is facing many challenges, particularly in terms of profitability. Profitability pressures are arising from the pricing, claims fronts, and changes that are happening because of motor third-party provisions. The industry is under pressure.

As we are marginal players at present, we are not being hit badly by all the events around us. To that extent we are well equipped to face the future. If you look at our solvency ratio it was at 12 times (that is assets are 12 times the liabilities) last year, against IRDA's requirement of 1.5.

We are far, far ahead of the IRDA requirement. What this means is that to support the growth that our company will embark on in the next two to three years it doesn't really require additional capital. We are well equipped upfront.

Detariffication and pricing

Ideally, the pricing should look up across all segments to achieve the solvency benchmark of 1.5. In the pre-detariffication regime, the loss ratio in the fire business was around 40 per cent. If that was the case, then how can companies give up to 95 per cent discount in the detariffed regime?

Many of these things (discounts) are happening across the board. Pricing has become irrational because of competition and detariffication put together. I will not say that this is something unusual because across the globe whenever detariffication has taken place, the market has taken a plunge as far as pricing is concerned.

But after about two-three years, realisation sets in that competition cannot happen only on price but on quality of products and quality of service. Hence, the premium starts picking up. I would think that this will also happen in our market. However, I have not seen clear evidence of that happening.

The fact that the IRDA had to reduce the solvency ratio below 1.5 (due to losses caused by the motor third-party pool) is actually not very good. In fact, our board has mandated that we should maintain a solvency ratio of at least 1.7.

When I hit 1.7, I have to go to the board and tell them that I need to do something to improve the solvency ratio. Solvency ratio can be improved through better operations, better profitability or by bringing fresh capital.

The industry will have to do a combination of these things. Some companies may need to bring in more capital, some may have to shrink their operations, some may have to focus more on niche areas where profitability is better to improve solvency.

Will not do business at any price

With a solvency ratio of 12, we can do a topline of Rs 1,500-2,000 crore. Our principle is that we will not do business at any price. If you really look at our promoter's capability — SBI is our corporate agent right across the country — I should be able to do business very easily.

But then I want to ramp up business only after we set up underwriting and claims settlement capability at all centres. Also, I don't want to do unprofitable business. If a customer shops around and gets a price which according to my company's philosophy is not acceptable, then I will walk away from that business.

So, I don't compete by reducing my price. That is one thing that I will not do. I hope to build on my record as a company which pays claims in a fair and transparent way.

IAG CEO says that insurance companies should be there for the customer at the moment of truth, when the loss event happens. How you address customers' anxieties and the losses that they have suffered becomes the true test for general insurance companies. We will be adapting the best practices of our foreign partner over a period of time to make a difference in the Indian market.

If you know that a calamity or an extreme event has happened, then it is important to contact the customer and check if there is a claim that can be registered so that the process of claims settlement starts. Else,, at such times, the customer may not think of lodging a claim. So we volunteer help.

Scratching the surface

We have crossed Rs 200 crore in business. We are scratching the surface of the entire market. The general insurance market was about Rs 47,000 crore. So, Rs 200 crore is a very small amount. But we would think in the long-term, retail and SME lines of business would be highly profitable.

Retail is generally expected to be profitable because risks are much better spread. Going by the basic law of large numbers, people contribute small, small amounts and it is expected that only a few of them will suffer a loss.

So, from this pool you pay their losses and keep a part as your profit and a part as administrative expenses. The same holds good for SMEs. Both these lines of business offer good potential because of two reasons — very low penetration and there is also a great element of under-insurance in India (people don't insure the full value of whatever they are insuring).

General versus life insurance

In the case of SMEs, we will have to make substantial progress as we go ahead. In many places insurance happens because it is mandatory. A car-owner takes motor insurance because the RTO will not allow his vehicle to ply on the road.

An SME promoter takes insurance because the bank will not give him a loan unless there is an insurance policy. In the process, the importance of insuring for the correct amount gets underplayed.

General insurance premium paid is a tax-deductible expense. In our Indian mindset, whenever people talk of insurance, they immediately think of life insurance. What they think of is returns, how much money will I get back, and will I get income-tax rebate for personal income-tax. General insurance is a business expense to cover risk, which you can't cover by yourself.

>kram@theindu.co.in

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