‘Pricing has been a challenge for general insurers’

The Chennai floods made a big dent in general insurers’ profitability last fiscal, according to Bhargav Dasgupta, MD and CEO of ICICI Lombard, the largest private sector general insurance company. In an interview to BusinessLine , he said that given the pricing challenges in the general insurance industry, the company is focusing on risk management and risk selection to build a relatively better portfolio. Edited excerpts:

What is your outlook for growth in the general insurance industry?

What we have found over the years is that the general insurance industry grows at around three times the real GDP growth. So, if the Indian economy grows at about 7 per cent, our expectation would be to grow at around 20 per cent. In FY16, growth for the industry has been 14 per cent and we have grown at around 20 per cent.

Going forward, in the next five years, we expect the industry to grow by around 15-20 per cent.

In which segments do you see growth?

Health is among the fastest-growing segments. In motor (insurance), we are beginning to see decent growth in private cars and two-wheelers, and sales of large and small commercial vehicles have started picking up. We will see what happens in the corporate sector, which has largely seen slow growth this year. I am hoping we will see more growth in the engineering side, especially construction projects.

What is your outlook for pricing in the general insurance industry?

Pricing, or premium, has been a challenge in the industry. Clearly, if you look at profitability in the last nine months, it has dropped and it is largely on account of underwriting losses compounded by the fact that we had events like the Chennai floods, which dented the industry severely.

Having said that, the way we see it is that while on an aggregate basis the industry is under-priced, but when competition in the industry is high we may not see price increases.

After the Chennai floods, there has been a price increase in fire insurance but on an aggregate basis the pricing is not adequate. When this will change, it is very difficult to predict. But what we can do is focus a lot more on risk management and on the selection side to build a portfolio which is relatively better in terms of the market.

The regulator has allowed around 40 per cent hike in motor insurance in some segments. Do you expect the losses to come down?

The fact that there has been a 40 per cent hike in certain segments is a positive. But if you look at the exposure draft, in terms of the increase in premium proposed, what has been finally given is significantly lower. In many segments we have no increase or just 10 per cent increase, which is clearly inadequate.

This is because apart from the backlog of the price gap that we have had, there is also a link to wage inflation in the underlying economy. So we have a serious gap in terms of pricing adequacy on the third-party side.

What innovation is ICICI Lombard looking at?

The biggest innovation that we have seen this year is the launch of a long-term two-wheeler policy. Traditionally, the industry has been on an annual premium structure. The good news is that we have seen huge traction and big demand for these products.

In fact, on certain channels it has reached 40 per cent of the business for us. So, this is a big shift in the industry moving from annual structure to long term — defined as up to three years in this case and it also helps the customer in terms of convenience as the ticket size is very small in two-wheeler insurance.

My sense is that we will see longer-term insurance emerge for other product categories and we will see innovation on the corporate side as the regulator has allowed ‘use and file’ procedure for products.

So, the industry will come together to form certain standards, after which we will see innovation.

Foreign re-insurers and Lloyds will now open branches in India. What impact do you see on account of this?

We will have to see how that will help the industry. Our sense is that it will bring in additional capacity, new capability and we hope to see more product ideas and innovation coming from these global players. In terms of how it will drive pricing behaviour in the market, time will tell.

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