Royal Sundaram Alliance Insurance deputy MD Antony Jacob believes competition is a tool that provides the vast Indian market innovative products at competitive prices

Chennai: A soft-spoken Antony Jacob, deputy managing director, Royal Sundaram Alliance Insurance Company, appears content. His company's first quarter premium income (Rs 70 crore) has shown a growth of 61.26 per cent over the corresponding period of the previous year.

But Jacob cannot rest on his laurels; he has a tough task ahead. He has to improve the company's current industry ranking of 9/13 since this is a fiercely competitive market. Among the private players, the top-ranking ICICI Lombard General Insurance is tapping the profitable fire insurance business even in the southern region. And the last entrant, Cholamandalam MS General Insurance, is also growing by leaps and bounds.

During the first quarter ICICI Lombard earned a premium income of Rs 126 crore, while Cholamandalam, which commenced operations only in October 2002, clocked an impressive Rs 24 crore.

"Royal Sundaram views competition as a tool to provide the vast Indian market with innovative products at competitive prices," says Jacob. Last fiscal, the company earned a premium of Rs 184 crore. Do the group companies (the company is part of the TVS group) insure their assets with Royal Sundaram?

Answer: "The 30 member companies of the TVS group contribute to approximately 10 per cent of the total commercial insurance business. For personal insurance, Sundaram Finance, Lakshmi General Finance and other TVS group companies contribute around 25 per cent to the total business. Fire, motor, engineering, marine and health segments were the main contributors to the total premium, though I cannot reveal the portfolio-wise premium income and management expense ratio on the grounds of confidentiality."

A qualified chartered accountant, Jacob, who has 16 years' experience in corporate finance functions, joined the India liaison office of Royal & Sun Alliance in 1996 and a year later was seconded to the company's New Zealand operations. In 1998, he returned to India as the chief executive of Royal & Sun Alliance India liaison office. And finally he was made the deputy managing director of Royal Sundaram, the 74:26 joint venture between the Chennai-based TVS group and Royal Sun Alliance, UK.

Starting its business with an equity base of Rs 101 crore, Royal Sundaram got an additional infusion of Rs 29 crore in October 2001. "As regards future equity infusion, we are satisfied with the current position. We are reviewing the situation as the business grows," says an optimistic Jacob. Excerpts from an interview with him:

It is said that non-tariff products offer insurers the flexibility in terms of bundling the risk coverage as well as premium rates and it is better for the new companies to go in for such products.
We provide a full range of general insurance products - both tariff and non-tariff. We have developed a number of package insurance products to suit every customer group.

Most new general insurers are following the strategy of market penetration by accepting coinsurance shares when it comes to project or corporate insurance. What is yours?
Our marketing strategy lies in providing insurance solutions and services through multiple distribution channels such as brokers, agents, corporate partners and our joint venture partner, Sundaram Finance, to reach the consumer the way s/he chooses and to deal with them fairly - and promptly. We are constantly developing and leveraging technology and valuable information to improve the service we can deliver to our customers and thereby add value to their relationship with us.

How far is pricing a deciding factor in choosing a general insurer?
Affordability and a clear understanding of the risks are the two dominant factors guiding the sales of insurance. So it is important for insurers to package products to suit unique requirements, besides pricing them competitively and providing a clear understanding of the cover with simple, easy-to-understand policy wordings. Price is a differentiator in many markets, but a large range of benefits and a higher sum insured obviously attract higher premiums. Thus a prudent underwriter always charges the appropriate premium for the risk.

Should the Tariff Advisory Committee (TAC) regulate the premium rates? Don't you think that detariffing will result in anarchy at the market place thereby risking the policyholders' coverage?
Several classes of insurance are already non-tariff. Major exceptions are fire, engineering, workman's compensation, marine hull and motor. The removal of tariff is a natural way for any market to develop and grow. The same applies for insurance. As the insurance industry has only recently opened to reinsurers, it is recommended that any steps to remove the current tariff be taken carefully over the next five years.

Security of their money and the insurer's ability to honour their promise weigh in the insured's mind. What is your view on getting the company claims paying the capacity rated by a third-party agency?
Globally, Royal & Sun Alliance works with rating agencies such as Am Best, Moody's and Standard & Poor's. They cover a variety of factors when rating a company. Some of them include industry risk, business review, management and corporate strategy, operating performance, investments, capitalisation, liquidity and financial flexibility.

Let's discuss about your reinsurance programme. Up to what amount of the sum insured per policy (the total value of insurance) will you retain for the risks?
Our reinsurance strategy is geared to maximising local retention and at the same time providing adequate protection for our wide range of portfolios. We work closely with General Insurance Corporation (GIC) and have in place a reinsurance programme backed by major global reinsurers.

What is your investment philosophy? Did the sliding-down interest rates impact your business plans? What is your total investment income last year and what is your current year target?
The company has already factored in the interest rate fall and to a large extent built such volatility in interest rates into the five-year business projections. Our investment strategy to manage returns on investment in the falling interest rate regime is to buy and hold interspersed with trading of stocks as and when the opportunity arises. We would adopt an investment strategy by which a bulk of our investments is being held to maturity, with trading interspersed as and when the opportunity arises. The objective would however be optimisation rather than maximisation of returns. With robust risk management tools in place, we aim to maintain the risks involved at a minimum and ensure safety of the funds of policy/share holders.

We study the market constantly to evaluate investing in high-quality assets that yield a slightly better rate of return than the "liquid" securities. Though they may not provide trading opportunities, they will provide higher returns on a regular basis with the quality of credit remaining the same. And to take advantage of the superior returns offered by mutual funds, we will look to invest in top performing funds.

Tell me about your underwriting results business segment wise? How do you plan to reduce the underwriting losses, if any?
Our underwriting results for the various portfolios are in line with our business plan projections. Claims ratios are in line with our projections, as loss control is a major area of focus for us. We have a dedicated risk management service, backed by experienced professionals. All major corporate clients benefit from a risk evaluation programme, coupled with recommendations for minimising the risk that these clients may face in their business.

In addition, should a loss occur, a detailed post loss review is undertaken to minimise the recurrence of such an event. For consumer products such as health insurance, we work with our TPAs [third-party administrators] to eliminate claims leakage. For motor insurance claims, we have the largest in-house team of motor surveyors that assess each claim and recommend appropriate level of repair work.

How do you deal with the motor third-party claims? What is your claims experience in your motor portfolio - own damage and third party?
For motor third party claims, we look to resolve the cases quickly and efficiently, rather than waiting for a case to go to court. A dedicated team has been set up within our corporate office to manage such claims. Our current loss ratio in the motor insurance portfolio is around 65 per cent.

And your distribution network…
Royal Sundaram's distribution network is a blend of bancassurance, agents and brokers, besides a branch network of 22 offices (as on 31 March 2003), with plans to add a number of branches during the current financial year.

The company distributes insurance not only through its partner, Sundaram Finance's distribution network of 120 branches in India, but also uses the support of other banking and finance distribution networks. We have strategic alliances with multinational banks such as Citibank, Standard Chartered Bank, ABN Amro Bank and American Express Bank to market our range of insurance products to customers of these banks.

To date, Royal Sundaram has tied up, besides multinational banks, with State Bank of India (SBI)/GE, Repco Bank, and the Sundaram group companies that include Lakshmi General Finance, Sundaram Home Finance and Sundaram Finance. We are in discussions with a number of local banks for further tie-ups.

With around 600 agents, Royal Sundaram also sees agents and brokers as being an important part of the Indian insurance scene. In many markets, intermediaries such as banks, agents and brokers are seen as the drivers of innovative products and contracts.

Tell me about the number of brokers/corporate brokers the company has. And the amount of business generated from them.
Royal & Sun Alliance works with major global brokers such as Aon, Marsh, Willis and HSBC and we will look to develop those relationships here in India. In addition, we have 'partnerships' with the majority of Insurance Regulatory Development Authority-registered brokers, as we see the development of this channel as an important step for the insurance industry.

Credit insurance seems to be the new market for general insurers. Do you have any plans to enter this arena?
Credit insurance is a specialist class of business and Royal Sundaram does not, at this stage, intend to underwrite such business.

How many employees do you have now? What is your recruitment programme?
We have 322 employees as of 31 March 2003. The team includes managers from various industrial sectors which include manufacturing, hospitality and consultancy. We have successfully recruited a number of quality, experienced underwriters and professionals from the local market and overseas.