The state of policy paralysis in India has hurt the general insurance industry significantly, says managing director and chief executive officer of HDFC Ergo, Ritesh Kumar. In an interview with Vishwanath Nair, he speaks on the growth drivers of the future, HDFC Ergo’s expansion plans and the company's online strategy. Excerpts:
How has the recent slowdown affected the general insurance industry and your business in particular?
In a state of paralysis that our country has been in, incremental asset creation has taken a backseat. There are no new projects, so there is no premium from them. Since there are no incremental projects getting completed, the fire premiums are stagnant. We have seen motor sales slowing down considerably. Motor insurance contributes 46% of the general insurance industry's premium and there the sentiments are low.
What kind of growth have you witnessed this year? What will be the drivers in the future?
In the current year, we have grown 20% and are growing profitably. But the growth rates have come down. Our portfolio consists of one-third motor, one-third accident and health, and the rest of other products. Of the total registered vehicles in the country, roughly 100-105 million must be running on roads, against that there are about 55-60 million insurance policies on vehicles. So there is a huge gap between the number of insured vehicles versus the stock of vehicles and that is an opportunity set. If you look at health, there is again a huge development potential there. Similarly, in case of home insurance, nearly 98% of the houses are not insured. There again you have an opportunity.
What are your expansion
We now have about 105 offices spread across India. Of this, we added 27 offices in the current financial year. In the next financial year, we plan to add 25 more offices. These are your brick and mortar sort of presence. This means the number of our employees has increased. We had 250 employees five years ago, by the end of the year we will be closer to 1,800 employees. We are adding a lot of presence. We are also hoping to develop our agencies over the next few years.
The penetration of the general insurance industry in India is abysmally low. What is required to improve this?
The primary sales need to be increased because we, as a secondary industry, benefit from better sales. We must look at distribution reforms in terms of the agency. We have about 4-4.5 lakh agents as an industry. The norms which govern the life insurance industry cannot be used to govern the non-life insurance industry. This is one important factor.
On the product side, what sells is the base category. The average ticket size in the industry is R5,000, which includes complex corporate policies. Agent attrition is not really an issue for us, but agency growth is.
The problem is how to incentivise agents to sell a small value policy. The agents obviously do not make enough selling this and you as a company need to ensure that they earn the basic minimum. This can happen in only by one of two ways, either you increase the agency commission, but as an industry we do not make enough to afford that. Then the only thing you can do to improve this is by increasing the ticket size.
Now you cannot do that at the cost of the customer. The way to do it is by allowing multi-year policies. Or you can also improve the scope of the policy, by covering more things and bundling options.
How do you view web as a distribution channel?
Our philosophy is to offer online platform as a services and sales portal, getting people familiar with that. We keep looking at our web presence from all these perspectives as to how easy it is to transact and renew policies, or the information available on it. Today, over 99% of the business happens physically and only the remaining online. But it will change and when that happens, it will be a huge point for the industry, so we need to be ready for it.