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December 14, 1999


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"More than prices, services will
improve tremendously"

The Rediff Money Channel presents a guide to the private insurance companies that are open to shop in India.

UK-based Prudential Corporation Plc with its tieup with ICICI is all set to take on the Indian insurance market once they get the license following the passage of the IRDA Bill. The 150-year-old company with over $250 million worth of assets is the largest insurer in the UK and has operations in the United States. Prudential has been providing its services in nine Asian countries for the last 70 years. Derek Stott, chief representative, and Brian Arrighi, head of group policy development, have big hopes from the Indian market. Neena Haridas caught up with the duo.

You have signed a memorandum of understanding with ICICI floating an asset management company. Will you extend this agreement for your insurance company too?

Stott: We signed the MoU with ICICI in 1997 and floated the asset management company. We will extend this tieup into a joint venture when we enter the insurance market. Prudential and ICICI would subscribe fully to the respective 26 per cent and 74 per cent share, leaving no scope for a third partner.

What are the products that you will offer once you launch in India?

Sttot: Well, our core speciality is life insurance and pension funds. And of course asset management. We will focus in these areas. In the UK we have non-life insurance products too, but we shall not bring these product to India now. First, we want to build a relationship with the Indians, build our brand here and then expand our product portfolio.

What is your reading of the Indian market?

Arrighi: Well, since it is not an open market, there is a lot to be done here. I think when the market opens up and more players come in and competition increases the quality and quantity of service will improve. The market will evolve giving the consumers and the insurers better choices.

Since you have special interest in the pension market, can you tell us what are the possibilities that you see in India?

Arrighi: Most countries are experiencing demographic changes which will cause them problems unless they take steps to introduce an appropriate pensions regime to stimulate more effective retirement provision. India is no different. There are a few schemes available from the public sector but they are few. Hence, it is better to direct the resources to encourage greater private self-provision. Pension reforms in India has a number of things in favour. First, there is a significant degree of political consensus on the need for change. Two, it has an existing regulatory regime for its insurance business and experience of a local pension system. And above all a lot of foreign companies want to set shop in India. I see a lot of potential in pension.

Considering that a large population is unemployed how will the pension schemes work here?

Arrighi: Yes, there is a large population in India that is not conventionally employed - and that is a disadvantage. Hence, the pension system should address the problem that less than 15 per cent of Indian population work as salaried employees and 85 per cent are self-employed and 70 per cent of the total population is in rural India. I think the companies will be able to work out schemes that work for both the salaried and the self-employed, but of course in accordance with whatever regulations are laid down.

What do you think of the rural market in India? Is it a market you wish to tap?

Stott: It is huge potential market. But first there is a need to increase awareness in the rural areas and then tap them with products that are best suited for them. For instance, a large rural population is depended on agriculture for a living, hence products tailored to their needs should he presented to them.

What is the segment that you are targetting at?

Stott: We will have products for all socio-economic categories. Our products will be tailored to suit the economic conditions of the consumer.

Do you think that with the entry of so many players, the price of the products will fall?

Stott: Well, price is not the only factor that gets affected with increased competition. More the players the better the competition and the better the quality of service. I think more than prices, the entire gamut of insurance will be professionalised and the services will improve in quality. May be the prices will be rationalised too.

What kind of premia will the market settle down to?

That's tough to predict but I guess once the market evolves the prices will have to be competitive and of course customers will start weighing the premia against the services offered. But I don't think it will be higher than the international figures, if at all it could be lower considering the potential volume.

How long do you think it will take for India to reach the level of US or UK?

Arrighi: That's tough to forecast. But I think the market will evolve slowy. I also think a market like the US is not a role-model because there are so many players in the US that there is too much choice for the consumer. And when there is too much choice, the best alternative is to choose none.

Most of the players that have expressed interest in India seem to be skewed toward life insurance. Is there is a reason for overlooking non-life insurance?

Stott:I don't really think companies are overlooking non-life insurance. But yes there is more interest in life insurance because it is a long term returns area and it is obviously a huge market.

Nobody seems to be talking about health insurance considering that health insurance is almost nonexistent in India. Why?

Yes, unfortunately there seems to be almost no takers for health insurance today. But that is not reality. The lukewarm response is because of lack of awareness. Once a number of players enter the market and give customers a choice it will be picked up. In fact, even the hospitals here do not insist on insurance - I think a lot of institutional awareness is needed here. Then you have to build a huge - very huge - bank of doctors. These are things that the government should put in order which the insurers can then build on.

What do you think the companies entering India will focus on - innovative products or marketing expertise?

Stott: I think to begin with companies will try to bring the basic products here and build a relationship with the consumers. For innovative products to work, the market needs to evolve. Hence, the focus should be more in brand building and relationship marketing. Innovations can come after that.

Mr Stott, being a marketing person how will you sell the idea of open insurance market to the trade unions and leftists who are today up in arms against it?

Stott: I think it is a case of the fear of the unknown. I call it the 'Hinudstan Ambassador Syndrome' - people bought the Ambassador and thought it was the best till they saw new cars after the market opened up. I think a similar thing will happen in the insurance sector too.

Are you really happy with the 26 per cent cap that the regualtor has fixed?

Stott:If that is what the regulator thinks is best for the country at the given point of time, there is no argument. Though multinationals would like to have a bigger stake I think this is the starting point and am glad that a consensus has begun. Life insurance and pensions are long term products and then companies entering the market today are here for the long term and this is a good starting point.

Are you open to the idea of ICICI having tieups with other MNCs for non-life insurance?

Sttot: Well, ICICI has stated that it is not interested in general insurance.

Will you be paying a premium to ICICI on your 26 per cent stake for the local knowledge and reach that it will provide you? Stott: This is not a topic being discussed. You see, both the partners benefit equally and there is no question of payment of any premium. The company will be floated with a paid up capital of over Rs 100 crore in order to get a national coverage.

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