Money & Banking

Pricing ‘has to move up' in the Indian insurance market

Beena Parmar Satyanarayan Iyer Mumbai | Updated on November 15, 2017 Published on May 24, 2012

Mr Tapan Singhel, new Managing Director and CEO, Bajaj Allianz General Insurance.

Proposal to cap third-party motor insurance at Rs 10 lakh is not unfair: Bajaj Allianz chief

In a career spanning two decades across both public and private sector general insurance companies, Mr Tapan Singhel, the new Managing Director and CEO of Bajaj Allianz General Insurance, has seen the sector graduate from the pre-liberalisation to the post-liberalisation era.

In an interview with Business Line, Mr Singhel outlines his thoughts on the challenges facing the industry, proposal to cap third-party motor pool insurance claims and his company's financial performance.

Excerpts from the interview:

What is the biggest challenge that the insurance industry is facing?

Pricing in the Indian market is not right. Margins are wafer thin. In all sectors there are segments which are struggling. Pricing has to move up. The ratio of what an insurance company expends to what it earns is 120 per cent. So for every Rs 100 that is earned, Rs 120 is expended.

There is a perception in the market that insurance companies are only there to make money. The reality of balance-sheet is different. We have been trying to push the prices up. If we do not have the right pricing, the consumer will suffer.

Where do you see the general insurance market at present?

Penetration is low. We have a growing GDP, rising middle class…so we see good potential. There is enough space for many players in the market. More foreign players are waiting to enter the Indian market.

Existing foreign partners in insurance companies are keen to increase their stake to 49 per cent from 26 per cent. This augurs well for the general insurance industry in India.

The Government has proposed a cap of Rs 10 lakh on third-party motor insurance claims. This has run into opposition from various stakeholders. How do you see the new proposals affecting the general insurance industry?

There are different ways we can look at this. When there is a train accident, the insurance cap is Rs 4 lakh in the event of death.

Which accident other than motor accident and air accident has unlimited liability? Everywhere else there is a cap. So, it is not unfair to cap third-party motor insurance at Rs 10 lakh.

The second issue is on the number of years taken to file a claim. In the case of motor-accident, you can file it any time. It then becomes an unlimited liability, because the value changes.

The cap should be three years, which is what we have proposed.

In some markets it is one year. This is a very good deal.

(The amendment in the Motor Vehicle Act has not been carried out and there continues to be unlimited liability.)

How has your company performed in the quarter and annually?

Our company has a 6.3 per cent market share. It broke even in the first year of operations. Since inception in 2001, every year we have made profits.

We could capture good market share and our return on equity is high.

In each line of general insurance business (health, transport, marine) we have a prominent presence.

We issued about 5.9 million policies last year, which was “one of the highest” in the general insurance industry last year. (In FY' 2010-11 the company wrote 6.4 million policies.)

We recorded a profit-after-tax of Rs 124 crore in FY12 as against Rs 43 crore in FY11. Our net premium earned was up 14 per cent at Rs 2,196 crore in FY12 compared with Rs 1,931 crore in the previous year. We made a provision of Rs 264 crore to cover motor-pool losses.

The solvency margin of our company was 154 per cent. Solvency margin measures the company's ability to pay claims in the event of a company having to cease its operations.

The Insurance Regulatory Development Authority (IRDA) mandates a solvency margin of 150 per cent, which means a company's total assets should be 1.5 times its liabilities.

The regulator allowed a reduction in solvency margin at 130 per cent for this year to compensate for pool losses. We stuck to the 150 per cent limit and that too without the infusion of fresh capital.

Which are the segments that are likely to do well for you?

There is a lot of excitement in the industry around health. About 5-6 years back, there was not much happening in the health insurance space.

Motor has traditionally been the big line of business for us. It contributes about 45 per cent to our business. Health contributes about 25 per cent.

However, health is growing faster than motor. Our focus will be on health. Our prediction is in the next 5-7 years health will overtake motor.

If you go to a hospital, 80 per cent of people do not have a health cover. It is quite sad that people have to sell their jewellery and belongings to pay for exorbitant hospital bills. So, there is a lot of potential in health.

> beena.parmar@thehindu.co.in

> satyanarayan.iyer@thehindu.co.in

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Published on May 24, 2012
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