BS insurance roundtable: Focus must be on underwriting profit, say experts

(From left) Marsh India Country Head and CEO Sanjay Kedia, Religare Health Insurance MD and CEO Anuj Gulati, Business Standard Consulting Editor Tamal Bandyopadhyay, ICICI Lombard MD and CEO Bhargav Dasgupta, and Future Generali MD and CEO Anup Rau a
The regulator has asked companies to make money from the insurance business. Your views?


Bhargav Dasgupta: If you look at the last 11-year performance of the industry since pricing was freed, the compound annual growth has been roughly 17 per cent. The industry was about Rs 29,000 crore in 2008, and became Rs 1.7 trillion in 2019. So, from the top line, we have grown well at a time when pricing actually collapsed in quite a few segments, particularly in the corporate line of business.


What is even more remarkable is that you made up underwriting losses but the real story is that profit after tax of the industry during the same period became one-fourth. In the long-term you have to focus on underwriting profits because that’s the core of your business. If you earn a premium of Rs 100, you must make at least Re 1 as profit, which means your combined ratio (for measuring profitability in the insurance business) must be 99 per cent, but the industry is operating at about 118 per cent (and running at a loss). Unfortunately, it does not leave enough capital to scale up, invest, and add new innovative products.


Will predatory pricing kill marginal players? 


Dasgupta: If the predatory pricing continues, the concern that one should have is that it would kill some of the competition. If this continues, then companies, which keep on losing money will gradually become less and less relevant and the industry will unfortunately get more concentrated. If the industry becomes more focused on underwriting, it will benefit not only the companies in the industry but also help policy holders because you will be able to invest in some of these new areas both in terms of innovation in products and in terms of distribution.


Anup Rau: When you are fighting for your market share I think the laziest thing to do is to compete on pricing or to compete on commissions and outplay others to have a loss leader model. At some level it also displays lack of imagination, innovation and customer focus. The issue is that a commoditised product is not a great proposition with customers. So, unless you actually revisit the way we look at customers, this will continue to be a challenge and it requires one international player to give out rational commissions or price rationally. Maybe a second player follows suit, and then the rest. So, it has a domino effect and you see that in all markets, in all segments and all over the world. Unless you stay focused on having innovative products and processes, and give the customers a better claims experience, this problem will persist.


What is your outlook on the industry?


Sanjay Kedia: The regulator has allowed freedom, but the insurance market is yet to take up this opportunity and offer tailor-made coverage for different industries and customers. Corporate India tremendously benefited after de-tariffing from 2008. The premium rates fell drastically, but what has happened in the last couple of months is a very big shock. They are going through a downturn and there has been a change in terms of General Insurance Corporation-led reinsurance rates, which has made property insurance more expensive - on an average a minimum of two times to as much as 10 times.  Corporate India is saying that the regulator allows competition, but this takes away competition completely from the insurance market. Also the challenge for customers is that there is no competition, no coverage improvement and they also complain that claim settlement speed isn’t good enough. So with this, mistrust in the insurance sector has increased in last three months.


How do you see the regulatory sandbox panning out? 


Anuj Gulati:  When we think about insurance in India, it's a highly regulated business and what I mean by regulated is that for the products that we can offer, there are guidelines which govern the kind of products we can design. There are guidelines that govern how we can distribute and the fees that we can pay and so on, because of which the industry is evolved, growing on the back of certain traditional channels of distribution and certain traditional products that we have all learned to offer. Along the way, time to time, the regulator is allowed for some innovation around products, but I don't think we have been able to take a big bang approach. That's where sandbox becomes interesting. It opens up avenues for bundling a whole bunch of services and newer ways of distribution with insurance companies. With new-age technology being available, it will also open up new distribution avenues.


Rau: At Future Retail’s Big Bazaar and other retail formats, customers can buy insurance at the billing counter. Somebody who is shopping can buy a product to protect himself or herself from mosquito-borne diseases. We call that a vector product. There's baggage insurance, where everything in the bag is covered. Innovation has been happening with respect to channels of distribution, more than for products. So here the innovation really has been on the channel of distribution more than products because we were told by all and sundry that this will never work because, you know, shops don't sell insurance. Innovation is not just about product, but it's also about distribution. And so I think that's one example I would like to give.


Dasgupta: We've got about five approvals. So one of the things that I think as a country we should worry about is road safety, because India is the accident capital of the world in terms of number of deaths that we have on the road. And unfortunately over the years, we've not been able to design products that incentivises better behaviour. One of the products that we got approval for is a motor insurance product, where you pay your premium based on the quality of your driving. It's not just about how long you drive—the number of kilometres but also the quality of your driving. And over the years, we've been experimenting with devices to figure out the quality of driving and correlate that with risk, in terms of claims.


How do you see this sandbox approach as a distributor?


Kedia: All stakeholders in the insurance industry have welcomed this regulation. It creates possibilities on all fronts, whether it is a product or distribution, and also the new age technologies it addresses. Whether it is all of these or in different combination, there are numerous things which are going to be possible. So it really creates a lot of possibilities and is a positive outcome.


Why is there mistrust when it comes to health insurance?


Gulati: Earlier when you went into a hospital to a third-party administrator’s desk and said you had medical insurance, typically the charges would be much higher. There is a realisation that as we account for a larger share of a patient’s hospital bill and their overall revenue, our ability to work with them and offer more standardised fare services improves. From the regulator's side, there's been a lot of work that has been done, in terms of permanent exclusions and so on. The grievances (from patients and hospitals) helps the industry review the products continuously and with the regulator, continue to standardise the product. There’s also a request to consumers – when you buy a product, please declare. Over-declaration will not hurt you, but under-declaration leads to unnecessary delay at the time of claim.


From the distributors’ point of view, what are the risks?


Kedia: Property risks are high because of poor fire safety. But business interruption losses are going up. As a thumb rule, I can say in the last 10 years, two-third of the loss of the insurance market, for corporate consumers, comes because of business interruption losses, and not because of the property damage. The need of the consumer is increasing on non-damage risk issues. The coronavirus is an example of a pandemic risk. Also, customers are concerned about supply-chain risk issues. When a risk opens up in Japan (for example), businesses in India in spite of having carried out supply-chain risk analysis, say that if this issue continues they would run out of critical supply parts. Many businesses are at the verge of this supply-chain risk.


This is a big opportunity for the insurance market. Cyber risk is the fastest growing insurance line across the globe. India will catch up. The new data privacy laws which India will soon enact will certainly create a very different level of demand. In the insurance market we will have certain areas of risk going away, but there are new areas coming up, particularly out of sectors such as technology, litigation, and simply because of living in an interconnected world.


What innovations do we need to ensure so that we don’t have lazy insurance?


Rau: When it comes to any product or service, you are talking about the proposition which is very important. The second thing is, the buying or selling process has to be frictionless. Now, whether it's through technology or without technology, online, offline or using AI or not, it doesn't matter. For example, health insurance isn’t really attractive for the younger age group because the proposition is weak. Secondly, certain kinds of products, they are just not accessible easily. We did a survey on our customers using some health products on why they bought the product? The answer was because nobody else came to us, which is not a great place to be in. It means we have a problem with the delivery of the distribution channel. So the conduit is the issue.


Dasgupta: If you look at the amount of venture capital investment going into health tech, to solve very difficult problems using AI is remarkable. If you look at what's happening in Silicon Valley, it’s directionally the way to go. Ten years from now, most of the things that doctors do today can be done with some assistance from a machine is prediction. So, from our perspective, using the same technology, there is a lot of things that we can do. It need not be for products in the industry, for services for customers at the time of buying a product. For insurance policies, it is the ease and convenience of a claim and the certainty that a claim will get paid in a predictable fashion. What we've done is using an image-based AI solution, you just point your mobile phone at your car. Right now, we have got a live video streaming process, which is looked at by humans at the back-end, and they approve the service immediately. So we approve the claim, we will send a pick-up truck and send it to a garage and get it fixed. You don't have to wait for someone to come from the garage. It is done by you because of the instant video based survey.


What about the Pradhan Mantri Jan Arogya Yojana which envisages Rs 5 lakh health insurance per annum for each family?


Gulati: The realisation is that collectively there are about 200 health insurance plans. At times there may be confusion in the customers mind. The below poverty line segment, the Jan Arogya Yojana project where the government is offering standardised products and subsidising premium or paying premium for that segment.


From an industry perspective, the thinking was can we do a standard product, and they're calling it the Arogya Sanjeevni plan. It becomes a standard product that each of us offers, we can price differently. It could start from Rs 50,000 and go up to Rs 5 lakh of sum insured. There are some standard features that come with a certain degree of co-pay so that there is no misuse of the plan. So in that sense, it becomes a bare-bone standard product and it's a good step forward.

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