Venkatachari Jagannathan talks to Arun Agarwal on the future of the Indian insurance industry

"We are indeed heading towards some of the most exciting times in the history of general insurance market in India. Six out of the eight private companies in the industry have completed three or more years of operations," says Arun Agarwal, chief executive officer, Cholamandalam MS General Insurance Company Ltd.

In the same vein he adds, "Overall there is a greater sense of stability, proactiveness and innovation among all the private companies."

According to him growth will continue to be the thrust area for all the private players. And the key impetus for growth will be product innovation and customer orientation.

"One can already observe the shifts and change of focus into these areas. In the retail spectrum we have seen some really good innovations in non-tariff lines like health insurance, overseas travel insurance, personal accident insurance and others. We have also seen these products bundled very intelligently to cater to and reach the right customer segments."

According to Agarwal, the traditional lines of business like fire and motor still contribute substantially to the growth of the sector. "In the commercial business, companies are attempting to approach insurance with a more holistic view by building expertise in the areas of risk management," he says.

For Cholamandalam MS General Insurance, fire and motor business contributed the major chunk of the Rs97 crore premium it earned last year.

On the facilities offered to policyholders after the opening of insurance to the private sector, he says that there are several self-help mechanisms for customers like selecting the right policy, premium calculators and online quotes.

"The direction," emphasises Agarwal, "clearly seems to be to make the customer decide what is most suitable for him / her." Excerpts from an interview:

How have you fared in 2003-04?
Our gross premium income was Rs97 crore and the net premium was Rs49 crore. The reinsurance outgo was Rs48 crore. Motor and miscellaneous insurance got us 37 per cent of the gross premium followed by fire (26 per cent) marine (6 per cent), health (9 per cent) and others (9 per cent).

Five per cent of the business is generated from the Murugappa group companies. Last year, our investment income was Rs15.57 crore and investment yield was 10.01 per cent. We continue to trade in the debt market and have not decided to move into equity segment.

What is your renewal ratio? How do you keep your account attrition low?
We certainly have to improve on our renewal ratio and move beyond the industry standards of 60 per cent. Being the initial years of operations, our focus has mainly been on growth through new business. With the completion of the first full-year of operations, renewals certainly will be of paramount importance to us. We are looking at various avenues to increase retention and the first step towards this is to develop outstanding service standards.

We intend to combine this with various alternate distribution channels intending to increase convenience for renewals. To our commercial clients, we want to extend our influence by taking up the role of partners in risk management rather than merely offering insurance products. It is through this holistic perspective that we approach insurance with that shall make our clients stick to us.

What is the profile of your premium earnings?
The retail business has been primarily through individual agents followed by corporate agents. They together contribute to more than 90 per cent of the retail premium. The commercial business is mostly direct or through brokers.

Most general insurers post underwriting loss. What about your company? How do you plan to reduce the underwriting losses?
We are likely to end with a small underwriting loss, which we hope to overcome next year through better quality underwriting, better control on costs and claims management and overall operational efficiencies. Our management expenses were at 38 per cent of the total premium.

What has been your total claims outgo?
Last fiscal the claims outgo was around 40 per cent of our net premium (Rs48 crore). The portfolio-wise loss ratios are: fire (38 per cent of the fire gross premium), marine (103 per cent), engineering (15 per cent), motor (41 per cent), liability (3 per cent) and others (31 per cent).

Our estimated liability outstanding is around Rs20 crore. Our loss control measures include in-house loss assessors, immediate control of claims, introduction of third party administrators in health and travel claims, cashless services provided by the repair garages and loss control advisory services rendered by Chola MS.

Do you have any plans to ask for additional capital from the shareholders?
Last year we had a capital infusion of Rs37 crore increasing the capital base to Rs142 crore. This makes us amongst the highest capitalised private general insurance company.

What reinsurance programme does your company have?
Our reinsurances has been supported by few of the best international reinsurance companies and we have enjoyed best of terms from them on account of our results as well as the underwriting philosophy and the background of underwriters / business heads who are running our operations.

What is your distribution network?
We are currently in 15 cities. Among the private non-life players we are having one of the highest Geographical spread. We continue to have rapid expansion plans.