“Don’t let the perfume of the premium make you forget the stench of a claim,” says Devesh Srivastava, CMD, General Insurance Corporation of India, as the state-run re-insurer now plans to move away from a topline approach to improve operational efficiency.
In an interview with BusinessLine , he also spoke about how Covid-19 has led to more demand for health insurance cover and the need for a business interruption risk without property damage. Edited excerpts:
GIC Re posted a net profit of ₹230 crore in the second quarter. What is the plan ahead for the fiscal?
About 80 per cent of our book constitutes of property, agriculture, health and motor. Being a reinsurance company, there is always a lag between what the direct insurance companies face and what we do. The second quarter for us was the first quarter for the direct insurers. By June 30, 2020, Covid-19 had set in and the quarter was the worst three months of the pandemic. Motor and health saw a sharp decline in claims and have done very well. For agriculture, this year has been a very benign kharif season and we are expecting it to be a good portfolio going forward. On property, GIC took a very bold step last year when it increased the prices. These rates have held on. So we are on a good path and are trying to make our portfolios profitable.
Is the health sector a concern in the Covid-19 era?
Health has been the best bet for us. Due to Covid-19, people have been worried and have bought health covers. October figures of the General Insurance Council show that health has grown by 10-15 per cent, and amongst standalone health insurers, retail health has grown hugely. Retail health showing good growth is a good sign for us.
There has been talk of a business interruption risk cover. Will GIC Re support it?
In India, we don’t cover business interruption without property damage. But due to Covid-19, business was interrupted even though the property was not damaged. Those claims are not tenable. But this is a gap which should be filled up, as it is not available in the Indian market. Since a pandemic is humongous in proportion when policies have a payout, such a cover will need a pool arrangement or support before it is set up. If insurers come to us for such support, we will examine it. But right now since we are in a pandemic with no end in sight, so no one would want to stick their neck out.
What is your outlook for 2021?
Our book is 70 per cent domestic and 30 per cent foreign. We are getting more choosy and picky. In our 49 years, we have written our business in a manner in which our combined was always more than 100. This was because we had a healthy investment income coming our way. But with the IPO in October 2017, our investors are clear that we are not an investment company; we are a reinsurance company, and we may as well make profits in the business we are in. Also, rates on investments are heading south. To make our reinsurance operations sustainable, we will have to work with an operational efficiency that gets us a combined (ratio) of less than 100. In the next 9- 12 months, we will not work on a topline approach and will only write business that makes sense to us. We cannot afford to dole out money, our investors don’t want that approach.
(Combined ratio is a measure of profitability and measures the incurred losses and expenses in relation to the total premium).
What is your expectation for the industry going forward?
The general insurance industry has not been doing well. With the auto industry not doing well, motor insurance has shown a huge de-growth. The industry as a whole is also down and the economy is in a slowdown with not too many projects, so fire and property insurance is not going well. There has been some improvement month-on-month. By the end of this fiscal year, we should be back on track, though it may not be as good as previous years.
The IRDAI has recently identified GIC Re as one of the three systematically important insurers. What does that entail for you?
There is a greater degree of monitoring and working more closely with the regulator, and we welcome it. GIC Re has always been ahead of the curve due to our international exposure. We are already starting work on risk-based capital and IFRS. We want to be ready when the regulator comes up with it.
How big a risk are natural calamities this year?
This has been a very benign year, both internationally and domestically. Crop-wise, there have been wonderful rains and internationally, not too many hurricanes in the US or cyclones in Japan.
The last three years were terrible for international reinsurers due to hurricanes, forest fires and bush fires. The years 2017 and 2018 were the first in a 100 years when two bad back-to-back hurricane years happened. The market has hardened. As January 1 comes and international renewals come up, we are seeing the rates improve considerably as we haven’t had claims. That is the good bit.
What are GIC Re’s international expansion plans?
Our Moscow subsidiary just opened up. In Brazil, our status was upgraded to an admitted reinsurer, which almost puts us at par with a local reinsurer there. We will look at doing something about our status in Brazil in sometime. The London syndicate is doing exceptionally well. It is, in fact, the cherry on the cake.