“General Insurance in India is a growing sector and there is ample scope for all the players”

Rikhil Shah, CFO, SBI General Insurance, speaks on the bright prospects for the general insurance industry, its challenges and the role the CFO needs to play in this growth-bound competitive sector.

Rikhil Shah, CFO, SBI General Insurance, speaks on the bright prospects for the general insurance industry, its challenges and the role the CFO needs to play in this growth-bound competitive sector. 
Q: General insurance is slated to grow more than 15 per cent in the next 10 years. What is SBI General Insurance's market share and how is it positioned to benefit from this growth?
Rikhil Shah: SBI General is one of the youngest General Insurance (GI) players in the market. Our current market share, post closure of December 2017 business, stands at 2.31%, a growth of 18% from last year, when the market share stood at 1.95%. In the next five years, we have projected an expansion of our foothold to over 5% in the GI industry and 10% within the private players. We pride ourselves in distributing our broad spectrum of retail and corporate products through our strong network of over 23,000 branches of the State Bank Group. We are present across 110 dedicated locations and have a pan-India presence through our parent network of SBI.  Our endeavour is to reach out to the Tier II and Tier III cities and rural areas through our parent network for whom we offer simple, uncomplicated insurance covers aimed at protecting their assets and health. Further expansion of the company and increased government focus on untapped markets will act as a driver for us to assist the government in increasing Insurance penetration both deeper & wider.
Q: A spate of successful IPOs were launched recently in the sector. What is the reason behind this increased activity?
RS: 2017 saw a paradigm shift in the opening up of the insurance sector, primarily characterised by a warm response to IPOs. These can be attributed to the following broad reasons. Firstly, there was a conscious effort to unlock the embedded value in a scenario when the stock markets are experiencing an unprecedented bull run. It would be worthwhile to note that the private sector players like SBI Life, Reliance Capital, HDFC Life, and ICICI Lombard are all first generation private insurers. With more than 15 years in operations, each of them have sound financials and enjoy operational seamlessness. The second reason could be to raise capital which would assist future expansion plans. It’s a win-win scenario, with promoters being rewarded handsomely and the insurance company expecting to receive capital infusion from an additional source. Thirdly, the Indian insurance  industry (both non-life and life) is poised for a high growth over the next 10 years. With mass inclusion efforts initiated by the state in the form of PMJDY, PMSBY (both Swastha & Suraksha), enhanced crop and weather insurance cover for farmers, the scope for both life and non-life industry to garner more life, health and personal accident business as well as crop cover rises manifold. Existing insurance companies which are already enjoying economies of scale, must gear up for impending growth.
Q: There were reports in November last year that SBI General Insurance may also hit the capital markets in the IPO in 18-24 months, seeking to raise Rs 2,500 crore. How are you involved in this exercise?
RS: Considering IRDA guidelines, SBI General is still some time away from listing. As per the listing requirements and criteria, SBIG would be gearing up with the listing process involving meetings with the merchant bankers, adhering to the minimum listing requirements and so on and so forth.
Q: The sector is also in a consolidation phase. What other plans does SBI General Insurance have to consolidate its position, as there seems enough headroom for it to grow?
RS: Yes, lately, the insurance space has seen some consolidation. Due to the gradual growth of the insurance industry, there is vast scope for consolidation as the top insurance companies wish to bring in better cooperation to pass on the cost efficiencies to customers. SBI General plans to grow both ways – organically and inorganically. Besides scaling up internal efficiency, we are open to suitable opportunities which make viable commercial sense. Often, smaller, fragmented players look to merge with bank-promoted players to build scale and for their existing distribution channel. Eventually, a consolidation would lead to higher value for shareholders and customers alike. Hence, if we see synergy in such deals, we are open to exploring the same.
Q: The market is very competitive given the presence of both private and public sector insurers. What is  SBIG's competitive advantage and how does it plan to sustain competition?
RS: General Insurance in India is a growing sector and there is ample scope for all the players. Having said that, each of the players have their own strengths and strategies to increase their footprint. We are targeting a growth of 40 per cent in our gross premium to Rs 3,600 crore during the current fiscal. We are looking to achieve this through a multi-pronged strategy of innovative products and a robust distribution network arising out of our parent bank support. We will fortify this further with our growing agency force and broker tie ups to extend our reach to untapped and undertapped markets. As a business model, we attribute our performance to better risk selection, claims management, improved expense control as well as efficient use of reinsurance. We made an underwriting profit to the tune of Rs 110 crore for the quarter that ended on 30 September 2017. We are one of the youngest players to achieve this so early on in our operations. We have always maintained that the true performance of an insurance player lies not just in their GWP, but also in them securing an underwriting profit. Furthermore, the ecosystem is also conducive with signs of economic revival and better pricing in the corporate segment. We firmly believe that technology will be a game changer for the sector. Be it in the field of claim settlement through cloud technology, blockchain etc. or emergence of online distribution channels, SBI General is adopting all of these to stay ahead of the curve.
Q: As the CFO, what are the unique challenges that you face in this sector?
RS: General insurance in India is a growing sector, there are some concerns that come along with a new/growing sector. The biggest challenge would be generating  profitability which is solely driven by income generated from investment assets. Earnings arising out of core insurance business/activities is still a matter of grave concern because of the price discounting players adopt across lines to maintain a competitive advantage. Post the abolishing of the tariff regime, the insurance margins have nosedived. Managing insurance margins thus turns into a tough task with inherent limitations in expenses and claims management.  Additionally, there is a need to innovate on a constant basis in order to stay afloat. Of late, the importance of understanding consumer needs have multiplied and insurance companies are  designing products constituting relevant covers. These have to be substantiated by satisfactory customer service – it would not be out of place to mention that insurance premiums which we pay towards procuring a policy – retail/corporate can only be accentuated through prompt, efficient, and transparent customer services. Finally, the recent changes in indirect tax laws have led to changes of IT structures/ applications  across the industry.
Q. How has GST impacted the sector as there have been demands to reduce the tax rate?
RS: Present GST at 18 per cent on insurance premiums as against service tax at 15 per cent. Considering an extremely low insurance penetration, the industry has appealed for a lowering of GST rates.
Q. What is your takeaway from the Budget?
RS: FM announced the merger of three General Insurance PSUs (United India Insurance, New India Assurance and Oriental Insurance) into a single entity. This entity will subsequently be listed as part of the Government disinvestment programme and provide the necessary impetus to insurance penetration. The merged entity and its subsequent listing could lead to improved operational efficiencies, adoption of suitable risk based pricing model while looking at a sustained growth rate, positively impacting both the insurance sector and the customer in the long term.
We welcome the Government’s initiatives on broadening the scope for medical insurance for Low Income Groups. With the announcement of the National Health Protection Scheme initiative which will benefit 10 crore families with up to Rs. 5 lakh per year, the government has made some serious efforts to improve state of healthcare in the country and made it a prime focus as this is touted to be the largest benefit program in the world. Further, raising the limit for health insurance premium from Rs 30,000 to 50,000 under 80 D and allowing a deduction of Rs 1 lakh for critical illness for senior citizens will prompt a shift in the mindset of consumers who still think they do not require insurance and encourage them to review their decision.
The Government has announced an increased focus on infrastructure spending through outlays for Smart Cities, Highway and Railway construction, which will also encourage private investments into the sector, thereby boosting our economy. Further, the tax sop announced for the SME and MSME sector will ensure growth for smaller businesses which contribute substantially to our economy as well as promote employment. The Government has announced exploring Blockchain on Technology, which would make payment across platforms easier. With a focus on healthcare, agriculture, education, technology and housing, the Budget is largely inclusive, reinvigorating various segments, which in turn is beneficial to the insurance sector.

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