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This article was first published 6 years ago  » Business » 'India's insurance density is one-tenth of China's'

'India's insurance density is one-tenth of China's'

By Subrata Panda
September 20, 2017 08:21 IST
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'We don’t see the need for another joint venture partner.'

'We have capability, skills, scale and understand the business.'

'You should look at general insurance over a two-three year horizon.'

Illustration: Uttam Ghosh/Reuters

Bhargav Dasgupta, bottom, left, managing director and chief executive officer of ICICI Lombard, tells Subrata Panda, in an interview that the company has adequate capital for now and does not see a need for fresh infusion through markets over the next few years. 

The interview was conducted ahead of its initial public offering, the first IPO by a general insurance company, 

The scenario for general insurance companies is that people get a policy only for a year and then go in for renewals. So, how does it work in terms of penetration?

For general insurance companies, the penetration starts picking up when the per capita income of the economy is around $1,500-2,000.


This happens because it is natural consumer dynamics.

Initially, people look at savings; then they look at buying assets and go for protecting those assets.

If we compare India with China, what we see is that our penetration is half of China and our insurance density is one-tenth of China.

Will the IPO mean Fairfax exiting the current joint venture with ICICI Bank? In that case, will ICICI Bank look for a new strategic partner?

Fairfax was keen to own 49 per cent in the joint venture while the ICICI Group’s objective is to list most of the larger subsidiaries.

So, listing would not have been possible as ICICI also wanted to hold majority shareholding of the company.

In that scenario, they felt it was appropriate to invest in some other company where they could own 49 per cent.

Rules say they can’t invest in two companies. They had to reduce their holding in ICICI Lombard to below 10 per cent.

So, the entire IPO process was largely driven towards that objective.

But, given their view about the industry and about our company, they want to hold on to as much as they can.

So, they will continue to hold almost 9.9 per cent of shares in ICICI Lombard.

We don’t see the need for another joint venture partner. We have capability, skills, scale and understand the business.

Many general insurance companies are going in for listing. Is there enough investor appetite?

Insurance is a new segment.

With the overall financialisation of the economy that is taking place, the savings pool is shifting away from physical assets to financial assets.

So, investors are looking for quality investment opportunities in multiple segments.

Now, one of the core segments for any economy is general insurance. And this segment did not have any listed company in the past.

So, four players in a very vital industry is not a very large number.

In future, will ICICI Lombard look to raise more capital by issuing new shares?

The IPO is entirely an offer for sale.

So, from ICICI Lombard’s perspective, we are not getting any of the money in terms of capital.

Our capital position, measured by the solvency margin, refers to the fact that we have adequate solvency margin. (It’s 2.13 as we speak today).

So, we don’t see any requirement for capital at least for the next few years.

In FY17, a large chunk of the business came from crop insurance. How do you see this segment growing this fiscal?

General insurance should not be looked at from a quarter-to-quarter perspective or annually. You should look at this over a two-three year horizon.

There can be some volatility, in terms of business or loses due to some catastrophe.

Last year may have been unusual because of a growth of 32 per cent, which may not be sustained.

But, going ahead, even if crop insurance does not incrementally add that big a number, the industry will be growing at 15-20 per cent easily, probably at the higher end of the range.

With the government picking up a chunk of the tab for crop insurance premia, there is a perception that insurers are gaining more than farmers. What do you have to say on this?

This is classic misunderstanding about what insurance does.

Last year, India had a good monsoon as well as produce on aggregate basis. It is natural that the insurance companies will be profitable.

But if we go back two years, (in) FY15 and FY16 we had a bad crop cycle and in those years, the insurance industry lost money.

If we measure the crop insurance business for a four-five year period, even last year, in certain states we had very high loss ratios and the farmers profited.

So, the way to look at is, risk pooling across farmers during the year and in aggregate over a four-five year period, there will be certain years where the insurance industry has to pay large claims and that is really supported by the profits that we make in a certain year.

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Subrata Panda
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