“If the industry does not charge the right price, the service provided will not be up to the mark”, says Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance. In a freewheeling conversation he tells  Sunil Kumar Singh Singh why there is still growth potential in the general insurance industry despite the economic downturn

At a time when general insurers are struggling to garner profit, Bajaj Allianz General Insurance managed to earn profit after tax of Rs 295 crore in FY13 Vs Rs 124 crore in FY12, up 138%. What were the factors behind that?

As a philosophy in Bajaj Allianz General Insurance we believe that for better customer service the company should be financially strong and should be making profits year on year. This may sound a contradiction as lot of people misconceive it as – you are making profits as you are not paying claims. But if you look at the statistics and compare profits with claim settlement ratio, you will see that the company which makes profits is also the one having the best claim settlement ratio. If the focus is customer service it is clear that the company should understand what they underwrite, they should price it right and when the moment of truth comes they should emerge as a clear winner in delivering to the customers what they have paid for.

This philosophy of ours is something which is inherent in the DNA of Bajaj Allianz. That is why you will see even in the difficult circumstances, we do not lose focus of our cost control measures, follow a strong underwriting discipline backed with a good reinsurance program with the best rated reinsurers of the world and keeping the customers at the centre of what we do. This is one of the reasons why we have been able to make profits year after year.

There is relatively lesser awareness and eagerness among many Indians when it comes to buying a travel insurance cover. Do you believe this mindset needs to change?

When you talk about less awareness of Indians as a reason of not buying a travel insurance cover, I think it has to do with our entire thought process of us as Indians that – nothing will happen to us. That is, we are an eternally optimistic people. We believe that anything may go wrong to the world but we are the ones where nothing will go wrong. That is there in our entire thought process and cultural conscience but unfortunately it is not always that optimism which pulls us through in real difficult times.

The second issue is that in earlier times the income of an average middle class has never been significant enough to consider necessities beyond basic needs in life. But in the recent decade or so this has been growing considerably. Increase in disposable income, awareness of risk, insurance companies reaching out with a good distribution are good growth factors. When these are combined together then there is a natural increase in awareness level and the penetration of any personal lines of cover grows and travel insurance can be one of that lines.

I think as an industry we have to work much harder. As a realistic individual we have to start accepting certain facts like risks are there and they do trigger and when that happens, it will lead to huge amount of emotional and financial hardship. You will be surprised to note that how cheap it is get to travel insurance as it will be only a small percentage of your entire travel expenses. It is that low but we hesitate in taking that cover because of eternal optimism of nothing shall happen to us.

Do you see the declining rupee impacting your bottomline in case of travel insurance products?

There is volatility in rupee value over the past few years. Being a customer centric organization we are trying to hold it and absorb as much as we can. But if it continues over a long period then we may have to relook at the premiums.

What are the key features a buyer should consider while taking a health insurance cover?

Health insurance is something I am very passionate about and at the same time am concerned when I look at the current scenario. This concern comes from a simple experience which I had at the hospital billing counter where I was waiting to pay my bills. I realized that about 80% of people out there didn’t have a health cover and about 30%-40% were actually taking loans or selling their jewelry or land to pay their hospital bills. It was a very sad moment. It shows the efficiency of us as an industry in not being able to provide cover to everybody.

For an average middle class person, a visit to the hospital wipes out their savings of many years in case of major illness because during this period people do not look at cutting costs. They try to provide the best of the treatment at any cost to their family members. But the cost of treatments is increasing every year. In case of even a simple illness the hospital billing in a decent hospital could go to a few lakhs.

So first and foremost health insurance cover should be taken by everybody. Even if your company provides health insurance, you should take a top-up cover if you feel you are not adequately covered. A personal health cover also helps when you move jobs or out of job or retired as you will still have a cover which triggers in case you are hospitalized. There are three or four products in health insurance that you should look at like a hospitalization reimbursement cover like Bajaj Allianz Health Guard, critical illness cover which covers the major illnesses and the third is the Hospital cash which covers the miscellaneous expenses at hospitals. Then you should also consider having a top-up cover which takes care of expenses beyond your existing sum insured. It’s a combination of all these policies which give an effective health insurance cover.

If I have to look at a health insurance cover in the current scenario, I will take Rs 2-3 lakh of health guard, Rs10 lakh of critical illness and also take Rs10 lakh of top-up cover and Rs 1000 per day of hospital cash cover. That will actually keep me adequately covered in case something goes wrong to my health. It will also be the best use of money as I am covering different facets of health insurance rather than taking one single cover which may tend to be very expensive. But that’s my personal thought and something which I would do to cover myself.

How do you assess the current general insurance industry in the country and where do you see the growth potential?

The general insurance industry has two aspects. One is that the general insurance industry is a mirror of the economic scenario in the country. If the car sales are good and new projects being set up clearly indicates that the economy is on a roll. These indicate that the general insurance industry also does well and if the economy goes down then the industry also follows the downturn sooner or later. The other aspect of the industry is the personal lines of business like health insurance, travel insurance, home insurance. Considering how much is the number of people in the country requiring cover or how much have we reached out to them and what is the penetration level, then the general insurance penetration is the lowest in the world at 0.67%. This means that the coverage provided in terms of personal lines is very low.

So while the economy may still be going down insurance lines dependent on the economy like property and engineering insurance and motor insurance would be affected. But the personal lines can still be a segment which can help to boost growth. I still feel that the growth is still there in the industry though not a very high one but it can be better than the GDP growth because of the low penetration in personal lines. I personally feel that the growth prospects are still exciting. It’s interesting and challenging times ahead, there’s a lot of work to do, which I am sure as an industry we will be able to do.  

What are the trends that you’re seeing in terms of pricing?

Pricing is inadequate in the industry. I have no hesitancy is saying that because if you look at the combined ratio in the industry, it is over 115% [combined ratio is the ratio of the sum of net claims incurred, net commission income and operating expenses to net earned premium]. If the pricing was right it would not have been so worse. But when I talk in the industry a lot of people now getting aware of what it is and pricing has now become the focal point of all discussions. I am hopeful that the industry shall respond to it in the form of price correction. As mentioned earlier if the industry does not charge the right price, the service provided will not be up to the mark. It is very sad because then customers are not getting what they deserved because they are not charged adequately. This is not something that the customer will be expecting.

The commercial third-party motor pool has been dismantled from April last year and has been replaced by a declined risk pool. Has this step led to trimming of losses for general insurers like you? 

The dismantling of third party motor pool has helped in trimming of losses for all the players. It was one of the systemic risks that plagued the industry. The declined risk pool is much smaller in size and hence will have lesser impact on the financials of an insurer. Since it is closely monitored by a panel set up by the regulator, the pool would not throw any surprises at the end of the year.

Many insurance companies are adding innovating riders along with a car insurance policy. Do you see it as a new trend?

Yes we see a welcome trend and customers getting value in the form of new covers. Bajaj Allianz has also designed some innovative riders like engine protector, road side assistance, return to invoice, NCB protector etc. for certain segments of customers. Of these road side assistance, engine protector and depreciation cap are most popular.

What are the new schemes are you planning to launch this year?

We are looking at couple of new health insurance products and have filed these with the regulator. As soon as we receive the approval we will launch it.