Government may announce a universal health scheme: M N Sarma

United India Insurance Company, wholly owned by the government, plans to complete its initial public offering (IPO) by September 2018, said M N Sarma, chairman and managing director of the company. The Chennai-based insurer is working on strengthening its balance-sheet and improving solvency margins. With a 10% premium growth and underwriting correction measures, it is hopeful of reaching solvency margins of 1.8 by March 2018. According to him, the government may announce a universal health scheme to club all health schemes under one health scheme in the Union Budget. Also, with the increase in regular income and awareness among public, he believes penetration of general insurance is on the rise. Anurag Shah spoke to Sarma on the overall growth in insurance sector as well as his company's IPO plans.

You have received a mandate from the government to list your company on stock exchanges. So what is the timeline you are targeting for the IPO? How will you manage solvency ratio required for the listing?

The government and finance ministry has asked us to be ready for the listing by September 2018. Prior to that, we are working on improving the solvency ratio by March 2018. Our solvency ratio might be around 1.8, which would be more than the required 1.5.

To improve solvency what kind of steps have you taken?

We have taken Rs 900 crore of subordinate debt, which will come to us by January-end. In loss-making businesses, we have taken quota share treaty. We have taken 20% quota share reinsurance in motor third party and health insurance businesses. So, the requirement for solvency fund would be less and then, we would be crossing the required 1.5 solvency requirement easily.

How will you turn around loss-making businesses? And what is the present premium growth?

At present, premium growth is 10%. As of now, health and motor insurance sectors are the major contributors to our losses. Third-party motor insurance losses occurred because of increasing amount of incurred but not reported (IBNR), general reserve money transferred for IBNR reserve. (IBNR is a type of reserve account used in the insurance industry as the provision for claims and/or events that have transpired, but have not yet been reported to an insurance company.) Therefore, loss is visible on books, but company's money is with IBNR reserve only. The third-party motor insurance premium is also hiked last year. So losses won't be much now. On the other hand, we are curtailing health underwriting losses. In group health businesses, we are underwriting carefully. With so much of underwriting correction, we will turn profitable or at least break-even.

What would be the IPO valuation? Will the funds raised go to the government or will you require some money for your expansion plans?

We will start the valuation process after March 31. Right now, our focus is on improving solvency ratio and we are confident that the ratios would be much higher than the requirement.

What would be your expectations for the insurance sector from the Union Budget?

GST rate for insurance sector is 18%, which I think is high. It should be reduced to 10-12%. Lower GST rates would be helpful for the public. Deduction in section 80D should be increased from the existing limits of Rs 25,000. As insurance premiums increased and taxable income is high, deduction limit should increase.The government may announce universal health scheme in this Budget.

At present, there are state-wise health schemes. A single health scheme might replace all of them. The state and Central governments will collaborate for a universal health scheme.

National Pharmaceutical Pricing Authority (NPPA) has capped prices for various medical devices like stents and others. Is it being reflected in claims?

We haven't seen any impact of capped prices of NPPA. While stent prices were controlled, hospitals have raised prices/charges on other services. The public has not got much relief yet. A health regulator for hospital pricing and procedures is badly required in the country. The insurance is a pool in which premium is received and claim is settled. In the end, customers will be at loss as costly insurance is not viable for everyone.

Is operational consolidation happening in United India also?

We are looking at viable options. If the business is less in any area and expenses are more, then we are reducing manpower or merging branches of nearby areas.

Going forward, what are your targets?

As the population of the country rises, there is so much scope to increase the penetration. People are getting aware of insurance benefits. But penetration should not be the main criteria for the growth of general insurance. Risk perception is less in our country so penetration can't be compared with other countries. At the same time, there is scope for increase in penetration as people don't have regular income and awareness about insurance. So, penetration will increase gradually and all companies are working hard on it.

Digital insurance is picking up…

We have started our digital activities. We have given standalone access to agents. But the overall share is less than 1%. By collaborating with aggregators, we recently did Rs 50 crore in premiums.