Sandeep Bakhshi, MD and CEO of ICICI Lombard General Insurance, the country’s largest private sector non-life insurance company, tells Falaknaaz Syed that premium rates for motor, fire and group health would rise in 2009-10.
What is the future of non-life insurers in the wake of a falling stock market even as they continue to charge lower premium due to removal of tariffs?
Non-life insurance companies would be required to recalibrate their pricing. Since the removal of tariffs in January 2007, premium rates for fire and engineering insurance have fallen to the lowest level. At this level, industry fire premiums would be inadequate to pay large catastrophic claims. The slowdown in growth rates is on account of rate reductions even though the volumes in terms of policies and the risk coverage continue to increase.
Underwriting losses for the industry have increased. Investment income used to support insurers and compensate for a shortfall in the underwriting results. However, this year income from the equity and debt market has also come under strain and this is expected to result in a focus on underwriting performance. Our premium rates are amongst the lowest globally and a correction in rates for motor, fire and group health is expected in the second half of 2008-09 and the full impact of this correction is expected in 2009-10.
The Insurance Regulatory & Development Authority (IRDA) has relaxed policy coverage for fire, motor and engineering. What kind of innovation will policyholders see from ICICI Lombard?
The insurance regulator has given freedom for innovating without curtailing the scope of cover thereby protecting the policyholders. Most changes will happen in motor, health and householder’s policy. Insurers will differentiate themselves in distribution and servicing customers. For example, we may offer a rent-a-car facility to policyholders till the time his or her car is getting repaired. The group health portfolio is the loss leader for our industry and a systemic correction in these is imperative.
How is your health insurance business?
Health Insurance is nearly 30 per cent of our book and retail individual health has been a satisfactory portfolio. However group health which accounts for nearly half of our overall health portfolio is loss-making and our combined ratio in group health is over 120 per cent. Corporates are under pressure to cut costs and it is understandable that they seek the lowest rates. However it is incumbent on insurers and brokers to educate corporates on the right coverage while encouraging employees to buy their own retail policies.
What was the profit/loss you made in the second quarter this year?
In 2007-08, we had a net profit of Rs 103 crore and for the first half-year ended September 30, we have managed to break even. Our combined ratio (claims paid in addition to distribution expenses and operational costs, to the premium received) was Rs 102 in 2007-08 and has increased to Rs 107 in the six months ended September 2008. We are working to bring it below 100.
(Sandeep Bakhshi is the Managing Director & CEO, ICICI Lombard)