Global consulting firm Watson Wyatt is known more as a firm specialising in human capital, though it combines these skills with financial management consulting. But Watson Wyatt traces its roots to the oldest actuarial firm in the world, R. Watson & Sons of the UK, founded in 1878.
Watson Wyatt Worldwide today has revenues exceeding $1.1 billion and about 6,000 associates – including specialists in benefits, human capital, insurance and financial services and investment – in 90 cities in 30 countries. It also serves top pension plans in the world.
Combining broad practical experience with leading edge technical and actuarial expertise, the firm advises a wide range of clients including major financial institutions, life, non-life and health insurance companies, re-insurers, fund managers, banks, bancassurers and companies involved in the purchase or distribution of insurance and financial services.
Richard Holloway, head of India operations, and managing consultant, Watson Wyatt, has been a frequent visitor to the country since 1997, much before the insurance industry was opened up. Holloway spoke to N Rao in Mumbai, giving his impressions about reforms in the insurance sector. Excerpts:
As somebody who takes a keen interest in the Indian insurance market, are you satisfied with the pace of reforms in the sector?
India is progressing well on the road to opening the insurance sector. The regulatory framework has been well laid down based on the best international practices, with strong emphasis on transparency, disclosure, best sales practices, sales force training and policyholder protection rules.
There is also a customer redress mechanism through a set of insurance ombudsman in various parts of the country. India has also placed substantial reliance on increasing insurance penetration, especially covering the vulnerable sections of the population, and for this purpose, introduced rural and social sector insurance obligations for every player, which has probably no precedent in any other country.
Several international majors are keen on setting up operations in India, where 16 life insurance companies are already in business. How big is the potential for the life insurance business in India?
There are several more insurance companies in other markets with a much lower population. India's strong economic growth, higher personal disposable incomes, better spread of incomes outside the cities, and the growing awareness of insurance penetration, are attracting newer entrants.
New players come with various strategies, such as tapping the potential among the middle income and even the `bottom of the pyramid' classes, and with a new range of product options, underlying the potential and significance of the market.
The first wave of entrants largely focused on countrywide strategies involving multi-distribution strategies, targeting the metros initially prior to expanding into other cities. Going forward we see the emergence of more niche players (focusing on certain distribution channels, or products). The potential is enormous.
The Indian government is keen to raise the foreign equity in insurance companies to 49 per cent, but its Leftist supporters are blocking this move. Is this likely to affect sentiments of foreign insurers?
All players, existing and potential entrants are convinced about the government move to hike the foreign equity limit, though the timing could be uncertain at this stage. We therefore do not see the current restriction affecting the sentiments per se, though a higher threshold announced quickly would hasten the entry of several more players.
How confident are you that India will open up the pensions sector to foreign investors? Are international players hopeful that the pensions sector would be liberalised in a year or two?
The need for a quick passage of the pension bill is widely talked about in the country, and we see that in a year, the impasse may be broken, although India will open this segment carefully in a calibrated manner, as in the case of several other economic reform measures.
What do you think are the problem areas that foreign insurance companies face in India? Are these insurmountable?
The key issues that the joint ventures with foreign partners face are the acute scarcity of experienced quality managerial personnel for key positions, problems in building a productive and cost effective agency force, and in some cases, capital constraints on the part of local partner to come up with the required capital infusions in keeping up with aggressive growth plans.
These are not insurmountable. A balanced product portfolio, a good distribution strategy involving alternative and other channels implemented well, and a shared vision between the local and foreign promoters are some of the approaches followed by the firms to resolve the teething issues.
Do you see international majors entering the health insurance sector? At the moment, just one dedicated health insurance company - Star Health and Allied Insurance - has set up operations in India.
Yes. There is a good deal of interest among major health insurers overseas about the Indian market. Some measures taken by the government such as promoting accreditation of hospitals and healthcare providers have provided confidence to new players.
The entry capital requirements were also lowered to promote new entrants. There are favourable signs that new players are devising various strategies, such as regional versus pan-India to get a foothold in the market.
How would you compare reforms in the Indian insurance sector, with those in China?
While some state-owned insurance companies in China have scored a march through international listing, several others, especially the foreign promoted companies are facing daunting issues on the sales front.
Restrictions on countrywide insurance sales have inhibited the growth of the market to some extent. On the other hand, India has followed a policy of joint ventures and allowed strong financial institutions such as banks to enter the sector as equity owners. Issues on the quality of sales force are common in both countries.
Are global re-insurance giants likely to establish a presence in India?
Major re-insurance firms from developed countries are already present in India in some way or the other both in life and non-life business, although once the regulations permit branches of foreign re-insurers to be freely established and do business in a capital-deficient country such as India, it will provide a greater impetus.