Making Non-Life Insurance Inclusive

Question: What is the size of National Insurance Company’s operations?

Answer: The company has added 42 billion premium money in between 2009 and 2012. As on 31st March 2013, its total premium base had touched 9.2 billion .NIC, as a leading non-life insurer, is trying to set its own goals without embarking on any race with its peers. But still by 2014, NIC is expected to achieve its business close to Rs110 billion. This impressive growth could be attained as NIC’s restructured management team is in mature shape and contributes significantly to the company’s business model. With new growth plans, NIC is targeting to triple its business by 2020-2022.

Q: What are the challenges the insurance industry, particularly general insurance industry, is facing?

A: If we look at the penetration of general insurance in India, today it is growing at 20-25 per cent. Even after discounting inflation, it is a good growth rate. Yet, insurance is an area which always faces challenges, such as spread, distribution, financial literacy, etc. India is a diverse country and a sizable chunk of its population is illiterate or has no financial awareness, making the insurers’ job tough.

In the growing automobile sector, insurance companies have to penetrate more aggressively. In rural areas, around 40 per cent of the vehicles are still not covered with insurance. With automobile insurance, the challenge is to maintain the policy after the first year.

In health insurance, there are lots of challenges to overcome. Rural areas do not promise high returns for non-life insurance companies. Operational costs involved and the return are not matching in this segment, causing companies to go slow on broadening their reach. But the scenario can be changed if the cost of healthcare could be rationalised in rural areas. Lack of adequate medical infrastructure and regulation of the health sector are other impediments. At present, rural people have no option to choose affordable treatment, which makes them vulnerable to exploitation. This unhealthy trend impacts very negatively on the prospect of health insurance business in rural areas of the country.

Q: What steps the regulator as well as the government must take to bring the industry back on track?

A: The collaboration of the government and regulators in health, automobile and other sectors could be very helpful for the non-life insurance business. Presently, the major constraints are in the standardisation and spread of non-life insurance products. However, under the new arrangements, it’s hoped that the situation will improve drastically.

The Indian insurance market is largely untapped. LIC’s Managing Director Thomas Matthew was quoted in a December 2012 news report as saying, “In India, insurance penetration as a percentage of the GDP is only 4.1. In advanced nations, it is 11-12 per cent. So, there is huge potential.” The insurance sector is hoping for regulatory changes that help them exploit this potential.

Market theory and practical economic experience suggest that competition and consumer choice secure better growth. If well-guarded through regulatory measures, there is no harm in hosting foreign capital in India’s insurance sector. This is the need of hour.

Q: Even as they adapt to regulatory changes, insurers in India will need to evaluate their product range and distribution strategy. Do you agree?

A: This is true. But now under the state-run insurance programmes, such as the Rashtriya Swashthaya Bima Yojna (RSBY), the awareness level has significantly gone up in rural areas for insurance. Insurance companies too are doing their best to spread awareness among the people about the benefits of insurance products.

Insurance gives long-term benefits and security. That is very important. People have to understand what exactly insurance is in order to benefit from the range of suitable products. The insurers’ work will be much easier after that.

Q: Distribution, intermediation and product costs remain big hindrances to micro-products and outreach. What are your views?

A: The major concern is the distribution cost to forward the insurance product in rural areas. NIC has introduced Core Insurance Solution (CIS), which will be helpful in spreading micro-insurance to the needy clients in both rural and urban areas at low distribution cost and on a real-time basis.

The insurance sector is extremely large and is growing at a speedy rate of 15-20 per cent. Together with banking services, insurance services add about 7 per cent to the country’s GDP. A well-developed insurance sector adds strength to economic development as it provides long-term funds for infrastructure development. It also enhances the risk-taking ability of the economy.

Q: Low distribution cost helps micro-insurance business by reducing operational cost and passing the benefits to the end-customer. What is your recommendation?

A: I recommend that the rural insurance business should be given more impetus so that the goal of financial inclusion could be accomplished. The role of various stakeholders, such as the government, regulator and insurance companies, would be vital in this endeavour.

Customer services are the top priority of NIC and on this, it is striving to be the first among public sector life-insurance companies. Growth and profitability are two other priorities, but these two must be built on the customer platform. If the customer platform is not strong, these two priorities will collapse.

Traditionally, NIC has strong presence in the East and North India. In West and South, its presence is thin—though in recent years, it has scaled up its operations. NIC has opened two new regional offices in Jodhpur and Madurai for greater customer focus and to achieve low-cost product distribution.

NIC is partnering with the Maharashtra government on Rajiv Gandhi Jeevandayee Yojna. This will make NIC’s footprint strong in the state. Currently, the total size of non-life insurance businesses in India is `700 billion, policy size is 20 million and the settlement rate is 90 per cent. NIC has 13 per cent marketshare in India’s non-life businesses.

Q: Finance Minister P Chidambaram has recently asked insurance companies to refrain from mis-selling and devise simple products for the people. Do you think mis-selling is a problem and how can it be corrected?

A: Unlike life insurance, mis-selling is not the case with non-life insurance. Product understanding among clients is very crucial. They must understand plans well before taking an insurance product to avoid future complications.

Q: What are your USP and growth strategy in a market inundated with life insurance players?

A: This year’s Union Budget has directed public sector insurance companies to make their presence at places where population has reached around 10,000. Hopefully, this would be done. For addressing region-specific operational issues and drawing attention to our products, NIC has opened centers in Kolkata, Chandigarh, Bangalore and Mumbai. This year, NIC will ensure one such office in every state. NIC is also tying up with Agricultural Insurance Corporation to sell agricultural insurance products. The financial inclusion drive of the government will open new vistas of businesses in rural areas.

However, with the opening of many new branches in rural areas, it is becoming tough to manage human resources. The experience of NIC suggests it. Most of the educated recruits are unwilling to work in far-flung areas. The four public sector non-life insurance companies are hiring 2,600 class-III staff this year, out of which NIC’s share is 800. A majority of these new entrants would be trained as rural insurance professionals.

Q: What are your expectations from the Insurance Bill?

A: The amended Insurance Bill is due to be tabled in Parliament. I hope it will increase the foreign direct investment limit from 26 per cent to 49 per cent. Unlike other financial services, insurance has been missing this positive provision of capitalisation. The higher slab for foreign investment in insurance will infuse equity capital, accelerate financial inclusion and push greater expansion. This will also be helpful in achieving advanced risk management, product innovation and employment creation.

Q: Most health products available in the market today are quite complicated. How can these be simplified? What is your initiative in this regard?

A: The health insurance business grew at a healthy rate of 23.69 per cent to reach `20.79 billion during 2011-12 against the industry growth rate of 18.50 per cent. The health premium contributed 26.69 per cent to the total GDP of the company and remained almost same like the previous year. NIC has implemented the RSBY in six states — West Bengal, Bihar, Assam, Tripura, Mizoram and Haryana — during the year and covered 1,54,96,416 below poverty line people. During the year, more than 1.5 million retail health policies were issued covering 4 million persons. In addition, 12,991 group/tailored health policies were also issued.

Q: Insurance in India remains a push, rather than a pull, product. How do you plan to change it?

A: In the third party liability, insurers need better safeguards. Lack of them bleeds non-life insurance business. Provision should be made to allow insurance companies to increase the premium. NIC is expecting some boost from the Insurance Bill. The company is doing its best to make non-life insurance business driven through the pull factor.