After a successful stint as the head of the Chennai-based United India Insurance company, K. N. Bhandari, took over as chairman and managing director, New India Assurance Company Ltd, India's largest general insurance company. Additionally, he is also the chairman, General Insurers' (Public Sector) Association, the body created by the state-owned insurance companies.
Mr. Bhandari, never loses an opportunity to voice his view that the press is not appreciative of the service and contribution to the nation by the state-owned insurance companies. "You don't highlight the fact that we pay more than what we collect from the policyholders," he complains.
With competition beginning to nibble at the public sector insurers business with a combination of risks covers, reduced procedures and clever marketing Mr. Bhandari is now feeling the heat.
In a short interview to domain-b.com he outlines the strengths of the four existing players and other issues faced by them. Excerpts:
domain-b.com: So competition is finally there for New India and other three government owned general insurers. What is going to be your marketing strategy?
KN Bhandari (KNB): Pricing and the wide network are my strengths and I will leverage that to the hilt. It is true that growth rate will slow down but at the most private players will take away 2 or 3 per cent of our business.
But the Indian press has failed us to a large extent. It is not appreciative of the fact that we collect far less than what we pay out as claims. The difference is absorbed by the investment income. For instance worldwide the premium for car insurance ranges between 6 and 12 per cent of the vehicle value. But our rates are just 3 per cent of the car value.
The other point that goes unnoticed is our risk retention level. Prior to nationalisation 50 per cent of the Rs. 100 crore plus premium income went out of India as reinsurance premium whereas today 90 per cent of Rs. 10,000 crore premium is retained within India. India is one of the few countries where risk retention levels are that high. The government owned general insurers have developed and nurtured underwriting skills at par with that of the world's best.
domain-b.com: Currently premium rates for most of the businesses are fixed by Tariff Advisory Committee. In a liberalised market what is the need for an administered premium rates?
KNB: Ultimately tariff/administered premium pricing will go away. Whether the policyholder will be benefitted or not is a big question. World over abolition of tariff has resulted in hike in premium. Further many insurance markets that were detariffed are now clamouring for tariff regime.
By the way, in India tariff is not the creation of post nationalisation period. On the other hand it is the legacy of pre-nationalisation era.
domain-b.com: Sometime back you had announced plans of floating a separate company to transact energy insurance business. What happened to that plan? Similarly does New India has any plans of hiving off its personal lines portfolio into a separate outfit?
KNB: We have got the consultants report. Now it has been decided that all the four public sector insurers will jointly float a new company for that purpose. Regarding a separate outfit to transact just personal lines of business will not add any value to my existing balance sheet. These businesses are cost intensive and the margins are very low.
domain-b.com: Many insurance companies are tying up with banks to market their products. Does New India has any plans on those lines?
KNB: What is the value that banks would provide to an insurance company? The answer is not much. Further banks are not equipped to provide after sales service to the policyholders. Hence I am not interested nor have faith in the concept of bancassurance.