Chennai:

Six years after the opening up of the non-life insurance industry, one private insurer is threatening to break into the top four of the till now exclusive preserve of the government-owned insurers. The fourth rank is now being occupied by the Chennai-based United India.

"True ranking would emerge only after the stabilisation of the detariffed regime. In the rush to grow the topline we don't want to sacrifice the long-term consistency. However, our focus is on writing good quality business that boosts our bottomline rather than being concerned with the topline growth," he responds. And that is one of the reasons for the company not going in for captive insurance tie-ups with vehicle manufacturers or their dealers. "The dealers demand higher commission rates than the maximum permissible," he explains.

According to him, what exists today is not a true detariff regime. There is no freedom for companies to decide on their pricing structure. Further, companies are allowed by the Insurance Regulatory and Development Authority (IRDA) to use pricing as a unique selling proposition."

What he says is true. Not many know that some of the United India's motor insurance policies are priced lower than those of the other insurers.

However, Garg is confident that the company will close this fiscal with a gross premium income of Rs 3,500 crore as against the target of Rs 3,400 crore. Last year, the company earned Rs 3,154 crore as gross premium. "The premium retention is also high for us. Our premium retention is 73 per cent while the reinsurance out go is just 23 per cent."

Twenty per cent of the total premium is contributed by fire insurance portfolio, 35 per cent by motor insurance, 6 per cent from marine (hull and transit) and the balance provided by miscellaneous business that includes health insurance.

As the real impact of the detariffication will be known only at the end of April 2007 when most corporates take their policies, United India has one more reason to be anxious.

In May this year ONGC Limited's offshore platform insurance is coming up for renewal. And United India is the lead insurer for this account. The premium income at stake is huge. Last year ONGC paid a premium of $41 million. The company has appointed five brokers - Aon Global - Aon Limited; Marsh India -March Mc Lennan; Heritage Insurance Brokers Pvt Ltd - Jardine Lloyd Thomson; J B Boda - Benfield; K M Dastur - Cooper Gay for obtaining the quotes from reinsurers and finalising the policy terms.

It may be recalled that United India settled a claim for Rs 1,700 to ONGC for the loss in the BHN accident in July 2005 under the offshore package policy.

Motor insurance to turn profitable
Come this April, the third party component of the motor insurance will be hived off to a common pool managed by General Insurance Corporation of India. The basic idea is to share the third party claims amongst all the insurers on the basis of their gross domestic premium. Like all other government owned insurers, United India is also heaving a sigh of relief.

"There will not be a major impact on our bottomline or in the loss provisions because of the pooling arrangement. The one benefit is that the overall loss will be shared by the industry as a whole."

The are a couple of positive impacts of the motor third party pooling system. Garg foresees the third party motor insurance portfolio turning positive over a period of time. Discussions are also on to amend the Motor Vehicles Act to give legal teeth for structured compensation to the motor accident victims. "Even though structured compensation system is in existence, nobody is availing that," he complains.

The other positive is that the growth in motor business is resulting in proper deployment of the workforce. "The will not be any voluntary retirement scheme in the near future as servicing the motor business needs more hands."

While that is on the positive side, the rising healthcare costs due to hospital bills, is now the worrying factor for the insurers as well as the policyholders. "People are now aware of the benefits of health insurance. As there is a 30-per cent increase in the health insurance business, the claims outgo is more than that," he says.

According to him, the company's health insurance portfolio is actually sick as the claims outgo exceeds the Rs 350 crore premium revenue.

With the fat in the fire and engineering insurance premia getting burnt post detariff, like other insurers United India too is considering raising the health insurance premium by a whopping 15-20 per cent. "We have filed the revised rates with IRDA and are awaiting the approvals."

Though insurance as a business is found on the principle of losses of a 'few spread over many,' Garg feels that increasing the sales of healthcare policies even in a geometric progression would not help in reining the costs and the claims.

"We have polices with sub limits on various heads. The hospitals manipulate the bills in such a way that make the sub limits irrelevant." Aren't the-third party administrators (TPA) effective in negotiating for lower rates with the hospitals promising volumes?

"TPAs can reduce the rates only up to a certain extent, while the hike in the hospital rates is manifold," he responds.

As in the past, United India will be post an underwriting loss (premium minus claims paid) this fiscal. Speaking of the investment income that paint the bottomline black Garg says, "We hope to have an investment income of Rs1,400 crore. Our investment portfolio is around Rs7,000 crore (investments in equity Rs1,500 crore balance in debt instruments).

Even though the company has exceeded the statutory ceiling limit on the management expenses Garg says the company is the second largest insurer in terms of reserves, gross profit and solvency margin. And it is this rank that Garg is keen on protecting.