‘Risk underwriting key to profitable insurance’

As the insurance regulator Irda and industry captains work hard to make the process of risk underwriting responsible and fool-proof, there are fresh hopes that general insurance will finally turn profitable in the near future. RR Belle (pronounced ‘bellay’), managing director and chief executive officer of SBI General Insurance, is one of the leading proponents of the theory that topline-chasers don’t necessarily make smart insurers. In an interview with Aswathy Varughese and Yogini Joglekar, he defines good risk underwriting and how this key function could turn around the fortunes of the general insurance industry in India.

Q: What are the emerging trends in the general insurance industry?
A: This year, we expect some moves on improving the profitability across the industry. Introduction of declined pool should provide some relief as it is a good interim measure. (‘Pool’ is a mechanism by which general insurers share losses from third party liability through a common fund set up in 2007. Contributions were made to the pool on the basis of the market-share of each insurer. Under the ‘declined pool’ arrangement, each insurer has the right to decline the third party insurance if it is too risky to underwrite. Such declined risks will be transferred to the pool. 

The size of each insurer’s contribution to the pool will now depend on the percentage of motor business done.) There are other changes relating to the Motor Vehicles Act that the government and the regulator (Irda) are contemplating. Also, in the health insurance sector, arrangement of higher co-payment under the corporate group health policy may narrow the losses. One more trend we wish to see in 2012 is more realistic pricing of risk and less of discount-driven pricing.

Q: What are your views on the motor third party declined pool for commercial vehicles?
A: Declined pool is a medium-term solution. As the industry evolves and the declined pool gets smaller, the industry will finally need to move to a system where there would be no pool. In order to create a sustainable commercial third party mechanism, the government, the regulator, the road authorities, the legal profession and the general insurers must bring about improved commercial road and vehicle safety, and caps on liability and time allowed to make a claim. We also need reduced time for settlements, reduced leakage of legal fees and consistency across the nation in all respects. In this regard, we welcome the proposed amendments that the government is planning to bring in to the Motor Vehicles Act, to cap the liability to Rs10 lakh and the period to three years.

Q: What is your take on the revised provisioning requirement for losses on third party motor pool?
A: The (general insurance) industry will face some amount of difficulty to deal with this issue. But there are opportunities in every difficulty. In due course, the industry will get adjusted to it. The impact of provisioning on us will be marginal as we have just entered the business. The reduced solvency requirement, however, gives a relief to the industry. Irda has given a timeframe of five years for the companies to bring their solvency ratio back to 1.5%.

We are much happier in this regard as we started the business last year with a solvency ratio of 12 as against the required 1.5%. At the end of this year, in spite of the business growing five times from Rs43 crore to Rs225 core, our solvency ratio will still be around 9.5% or 10%.

Q: How well are you using the distribution channels as your parent, SBI, has got a wide customer base?
A: We have not used up to 10 % of the capability of the distribution channel as of now; rather, we have used it in a very concentrated way.  It may take around another two years to utilise the channels in a full-fledged way.

Q: Do you think bancassurance would be an emerging channel in coming years?
A: Bancassurance is one of the best channels for healthy distribution of insurance products. Since the bank customers have already passed through some rounds of due diligence, chances of adverse selection as insurance customers will be significantly less. In that case, my claims experience (as an insurer) will be much better.

Q: Do you have any plans of entering the health and micro-insurance spaces?
A: We just got an approval for our micro-insurance product. Soon, our presence will be felt in this space. But we have a fairly good coverage in rural areas. We are able to utilise the customer base of SBI on this front. Our rural coverage is far ahead of what the regulator stipulates.  Some time back, the regulator had asked life- and non-life insurance companies to design a combo product for the micro-insurance space. We have got the approval for such a product.

Health insurance is an emerging sector and we definitely have plans of exploring avenues in this segment and probably by 2013, we will be starting our business.

Q: How would you like to position SBI General Insurance in the industry?
A: We would like to position ourselves as an insurer who will: deliver well-differentiated and superior customer experience at every touch point; approach pricing in way that will promote a culture of risk management and safety upkeep of the assets by rewarding positive and proactive behavior; and provide fast, fair and transparent claims procedure that will seek to put the customer in control.