Motor Insurance – Current and Emerging Scenario

Kamesh Goyal, CEO, Bajaj Allianz General Insurance Company

India is witnessing a boom in car and bike sales and it could not have come at a better time. The burgeoning middle class and the improvement in roads and highways have only accentuated the vehicle sales. The spill over effect of this boom has let the motor insurance portfolio of insurance companies also on the growth highway.

Scenario Pre-2001 Era - Dealer's and Insurer's Perspective

In fact, it will be interesting to know what happened prior to 2001 and I would like to highlight some of the issues prevalent at that time. Let's first look at it from the dealers' perspective. The concerns were -

▪	They used to get commission as little as 5% and that too in non-financed cars.
▪	Only 18% of the car policyholders used to make claims.
▪	There was no system to chase renewals and the only interaction point with the insurance company was the development officer.

 
In short, insurance was a low priority for the dealer as well as the manufacturer.

On the other hand from the insurer's perspective, motor insurance was a loss-making portfolio and at best a nuisance. There was no real strategy to control claims and the poor customer interface was accentuated with excessive dependence on independent surveyors. There was no data capturing or analysis for customer segmentation.

Paradigm shift in 2001

The liberalisation in 2001 lead to a paradigm shift and changed the perspective of how dealers, motor manufacturers viewed motor insurance. We at Bajaj Allianz adopted a dealer centric business model, where commission income was increased, and introduced better customer convenience by enabling policy issuance at dealership location. As a result, body shop income increased by 100%. We also had strategic partnership with auto manufacturers like Maruti Udyog Limited and Ford Motors. We are looking at this portfolio with a strong commitment and our focus would be on data capturing/ analysis besides our core competence in claims management and service.

Kamesh Goyal Kamesh Goyal, CEO of Bajaj Allianz General Insurance Company is an alumnus of St Stephen’s College, FMS & Law faculty (University of Delhi). He has worked in the insurance sector since 1988 in companies like New India, KPMG & Allianz Group. Bajaj Allianz is a private general insurance company in Motor Insurance. The company pioneered several innovative services in Motor Insurance like tying up with motor manufacturers for distribution of motor insurance, cashless settlement of motor repair claims through its preferred workshops, on-line renewal and purchased of policies etc. The company is still the only company in India to provide SMS alerts on Motor claim status for its customers. Bajaj Allianz was also able to reduce the TAT (Turn Around Time) in claim settlement by having specialized personnel from the automobile industry domain to assess and survey the motor claims. The company has been making steady progress and in the year 2005-2006, the net profit of company rose to Rs. 52 crore, a growth of 117% and garnered premium income of Rs. 1,285 crore. In the current year, company is growing at over 50%. Kamesh has been invited to present the Indian success story at several Allianz group companies worldwide. He was the only member from Asia Pacific to work on an international project undertaken by the Allianz Headquarters to share best practices and implement them in other operating countries.

 
Current Scenario

The scenario is much different today and motor insurance gets its due importance. Motor insurance today constitutes 60% of the portfolio for most of the general insurance companies in the world. The trend would be the same in India also. In 5 years, the motor insurance is slated to increase from Rs. 8,000 crores to Rs. 20,000 crores. Currently, it is 41 % of the total general insurance business up from 36% five years back. The current state of motor insurance as prevailing today can at best be summarised as below -

▪	Insurance has become the important driver for dealer profitability and customer satisfaction;
▪	Motor insurance especially private cars, is an area which all insurers want to develop;
▪	Continuous increase in cost and charges for labour & parts and higher awards for third party claims are pushing the claims ratio up.

 
The next paradigm shift could happen when de-tariffing happens. The fastest growing regions are Delhi, Andhra Pradesh, Karnataka, Maharashtra and Gujarat.

Emerging Scenario - Impact of De-tariffing

I am often asked what would be the impact of de-tariffing on the motor insurance portfolio, for which I have this standard answer - A known devil is better than the unknown. I would say that the actual impact can only be felt when it actually happens, as the depth of the water can only be felt when we swim in it.

Nevertheless, some learnings from other countries would help so that we can prepare for the eventuality. As experienced in other countries, the premium rates can plummet and sometimes unrealistically. When motor insurance is an additional and consistent revenue stream for the dealers, one can imagine the impact, which can be dreadful. So, I feel customer segmentation is the only way to survive in a price driven market.

Country like Italy, which was de-tariffed in mid-nineties provides some good learning points. The size of the country would be smaller than any of an average Indian state; however, the country has been divided into 620 geographic risk zones for insurance rating purpose and insurance companies use up to 76 variables for rating. In contrast, India has only 2 zones so far. Further, there are no proper tariffs available.

One thing that is certain among all the uncertainties is that de-tariffing would change the scenario dramatically and may also impact the biggest profit driver for the dealer. Some of the changes that I foresee areas below –

▪	Premium rates could vary significantly based on make, model & geographic zones.
▪	Dealers will face increased competition from agents in renewals as "information" in proposal forms is much better at the agents hand.
▪	Insurers may be forced to develop non-dealer channels to reduce commission & average claim size as pressure on margin will increase.

 
What's in it for dealers?

A pertinent question in the minds of the dealers would be - "What's in it for us?" Well, it can be an opportunity or threat as an individual sees it. I would say, it is an opportunity for both the dealers and the insurers provided you look for strong partner and long-term partnerships with insurers for mutual benefit, such as -

▪	Repair instead of replacement - this will be beneficial for dealer & insurer;
▪	Instead of reducing premium, look at additional insurance product like depreciation cap/conveyance expenses/extended warranty;
▪	Big dealers have opportunities to set up facilities for repairing all makes and models.

 
A hypothetical example of how repair instead of replacement would be beneficial to the dealer and the insurer can be explained as below -

▪	Cost if Door is replaced:
		Part cost Rs. 14,500/- + Labour replacement: Rs. 350/-
		Net profit for repairer: Rs. 2,475/-
		Net liability on insurer: Rs. 14,850/-
▪	Cost if Door is repaired with skin
		Cost: Rs. 3,500/- + skin replacement: Rs. 2,100/-
		Net profit for repairer: Rs. 2,625/-
		Net liability on insurer: Rs. 5,600/-

 
Detariffing will change the way we work. I recall a saying, "We cannot prevent the waves but can definitely learn to surf."