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A regulator should not police premium rates: M Ramadoss news
05 July 2007

M Ramadoss, chairman cum managing director, Oriental Insurance Company Limited, discusses the road ahead for the government owned general insurance companies with Venkatachari Jagannathan.

Chennai: Six months after the administered pricing system in the domestic non life insurance industry was scrapped, free pricing in its true sense is yet to take shape. The Insurance Regulatory and Development Authority (IRDA) has imposed a floor level below which insurers cannot price their products that were earlier under administered pricing mechanism.

Says chairman cum managing director, Oriental Insurance Company Limited, M Ramadoss, "The IRDA''s ceiling has not changed the situation. The unhealthy practices that were prevalent in a tariffed market still continue."

He adds, "No other insurance regulator governs the premium rates. All regulators police the insurer''s solvency margin."

An all India chartered accountancy rank holder Ramadoss, has a strong determination. His father died when he was in school leaving behind his mother and three sisters to sustain themselves with a meagre rental income. Against the suggestion of his close relatives to seek a job after graduation, Ramadoss opted to pursue chartered accountancy.

He cleared his final chartered accountancy exams standing 31st rank in 1975 even before he had completed his articles at the Chennai-based chartered accountancy firm Fraser & Ross.

Soon after that he was selected as assistant administrative officer (AAO) by The New India Assurance Company Limited. The financial strain on the family eased to a large extent and he was able to arrange the marriage of his sisters.

His career progressed at brisk pace at New India. He acquired professional insurance qualifications and is a Fellow of Insurance Institute of India and an Associate of UK-based Chartered Insurance Institute.

In 2001 he became general manager and was posted in London overseeing New India''s operations in the UK. "The London posting was interesting and challenging," he reminisces. Four years later he rose to head Oriental Insurance.

Last fiscal Oriental Insurance earned a premium income of Rs3,940.53 crore, of which the net premium after reinsurance outgo will be around 69 per cent. "Last year we were the market leader in engineering, marine cargo, aviation, hull insurance businesses. All these portfolios involve lot of reinsurance outgo," he explains.

For the current fiscal Oriental Insurance hopes to achieve a topline growth of 15 per cent. "While the target is challenging, it is attainable," Ramadoss says confidently. At the end of May 2007 Oriental Insurance has jumped to the second place in the 12-member non- life insurance industry with a premium of Rs743.23 crore.

Under him the underwriting procedures have been tightened. Prior to his coming, Oriental Insurance was one of the two government owned insurers that had recklessly underwritten subscriber default risks of a mobile telephony player.

But Ramadoss, who loves chess, thinks twice before making adventurous moves unless he has his flanks well covered. He has often turned away insurance proposals with sizeable premium income, unless he feels claims are manageable.

Chairman of General Insurers'' (public sector) Association (GIPSA), Ramadoss talks about his plans for Oriental Insurance as well as the future of the four government owned non-life insurers. Excerpts:

Private companies are not only catching up but also overtaking the government owned non-life insurers.
The strategy of private players seems to be to gain topline growth at any cost so as to get better valuations. But we are for profitable growth. There have been instances where we have turned down big-ticket group mediclaim policies because of high loss ratio.

For instance we turned away a group mediclaim business from a large IT company based in Bangalore. The premium potential was around Rs12 crore. The previous year the account experienced a claim of around Rs20 crore. Even after factoring investment income on the premium amount the account will not be profitable for us.

None of the other three government owned insurers came near that company. The government companies have bled all these years. We are slowly changing towards profitable growth, cutting down losses. However, a private company wanting to show topline growth has accepted that risk at a lower premium.

What are the highlights of Oriental Insurance''s performance last year?
We were able to reduce incurred claims to a good extent. The incurred claims ratio in the case of motor own damage (damage to vehicles) came down to 43 per cent from 48 per cent in FY06.

During FY05 the figure was 53 per cent. We underwrote motor business aggressively when others applied their brakes to it. One can''t grow without doing motor business. Our motor portfolio premium will be around Rs1,900 crore. The third-party (TP) claims ratio has come down to 160 per cent. In three years the combined ratio (premium: claims, administration and dividend expenses) will be less than 100 per cent. Today it is 121 per cent.

What is the growth rate that you have targeted for the current fiscal?
We are targeting a topline growth rate of 15 per cent. While the target is challenging, it is achievable. regional managers have to sign an MOU with various parameters to achieve goals.

On the claims front the target is 5 per cent reduction in motor OD. The motor OD ratio is to be less than 40 per cent. We will clear all pending non-suit claims and no claim will be kept pending for more than six months.

The IRDA chairman says that companies are free to have region-wise premium rates for health insurance. In motor insurance there is region-wise premium structure. What is your view?
A region or city-wise premium structure has yet to be tested. The issue to be resolved is when a person who has taken a policy in a non-metro city opts for treatment in a metro hospital. Perhaps, we can charge additional premium as `metro addition''. Insurers are yet to look at this concept in a serious manner.

The interesting trend is that corporates do not want their health care claims to be processed by third party administrators (TPA). Many individual health insurance policyholders are also opting out of TPA services.

Government owned non-life insurers are phasing out their marketing force, while the general view is that a company that makes its marketing force a run-off cadre will never survive competition. What is your view.
The cost norm laid down for development officers / marketing officers is around 10 per cent. They are expected to procure business and meet the cost norm. However, we found much of the business procured by development officers was routed through an agent who had to be paid commission.

This in turn increased the procurement cost for the companies. During the last three years the total business procured by development officers grew just by one per cent. This channel has become a costly and uneconomic one.

Employees are talking about the merger of four government owned non-life insurers. Has GIPSA discussed it?
There has been no serious discussion on the merger at GIPSA, except casually, perhaps.
Today we see advantages in a merger as the capacity to insure will go up to Rs5,000 crore.

Further the premium retention will go up to 90 per cent from the 70 per cent at present and there will be drastic reduction in the reinsurance outgo. The net worth of the merged entity will be around Rs9,000 crore and the market value of investments will be around Rs30,000 crore.

There is also the value of the real estate owned by the insurers. But people are sceptical about the merger. The reality is that today the four companies have around 4,100 offices competing with each other. In the case of big project insurances the premium difference between the four government insurers is around Rs30 crore. That is a lost opportunity for government companies.

With the private sector getting aggressive we should not lose any more chances.

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A regulator should not police premium rates: M Ramadoss