Partnership in Insurance

Antony Jacob, Managing Director, Royal Sundaram Alliance Insurance Company Ltd

Gone are the days, when customers were satisfied with a couple of manufacturers bringing out their cars, with each model being a cosmetic makeover of the grill, or the head and tail lamps. We are now witnessing the launch of a slew of latest cars, two wheelers and CVs in the Indian marketplace, at frequent intervals.

Ever since India embraced globalisation in 1990, we have seen the arrival of many new automobile manufacturers and the introduction of several new models of vehicles in various segments. The potential of the Indian market has prompted manufacturers to offer their latest global models in the country. This is a sea change for the Indian consumer, who is now faced with the happy option of choosing a car/ two-wheeler to own and drive away with pride instead of being burdened with the copious processes of the past. Chasing allotment letters, paying premiums for quick allotment and long waiting periods are a thing of the past!

The arrival of new players and wide range of vehicles in the market naturally translates into a growing need for a greater number of dealers to sell as well as service customers. As the product range and the choice has widened, the competition to woo the customer has the taken centre stage among automobile dealers, resulting in their shrinking margins.

The intensity of market competition apart, the arrival of global models requires to be backed up by state-of-the-art showrooms, heavy infrastructure, higher cost of carrying an inventory of vehicles and their spares, among many other such expenses. These added cost implications have also contributed to lower profitability for the dealer fraternity.

Antony Jacob Antony Jacob, an Associate Member of the Indian Institute of Chartered Accountants, joined the Indian Liaison office of Royal & Sun Alliance in 1996 after holding successful financial portfolios at ITC Ltd and Continental Grain (India) Ltd. A year later, he was seconded to the Company's New Zealand operations. In 1998, he was appointed Chief Executive of the Royal & Sun Alliance India Liaison office, following which he spearheaded the growth of Royal Sundaram as Deputy Managing Director. He is currently the Managing Director of Royal Sundaram Alliance Insurance Company Ltd. Jacob was instrumental in forging the venture between Royal & Sun Alliance and Sundaram Finance, and obtaining the license for Royal Sundaram's operation in India. Royal Sundaram now employs over 500 people working from 34 branches across India. Jacob has been a very active member of the insurance industry contributing not only to the organisation but also to the industry in general. He is a Member of the Tariff Advisory Committee (TAC), Breach of Tariff Committee and the General Insurance Council. He is a Member of the Asia & Middle East Leadership Team of the Royal & Sun Alliance Group. He is on the Board of Royal Sundaram Alliance Insurance Company Ltd.

 
There is a pressing need to introduce some innovative methods to attract customer footfalls by auto dealers to their showrooms. One of the models adopted successfully is of a "one-stop shop" for all the customer needs associated with the purchase of an automobile. Today, a customer can walk into a dealer showroom and can choose the model, colour and accessories. Once this is finalised, the finance, insurance and registration are immediately addressed at the dealer premises itself. Hence, the customer really does not have to bother about anything at all, except, of course, signing on the dotted line.

The fierce competition in the marketplace has prompted the auto retailers to look out for and tap other allied business opportunities. A few valuable and important alternate sources of revenue for dealers include vehicle finance, insurance, accessories, spare parts, etc.

Insurance is mandatory for all the motor vehicles being driven on roads in India - it is a must buy product for the customer. Instead of making the customer seek out the insurer to buy the cover, dealers can add value by extending the service of offering on-premise insurance product along with the vehicle. Many dealers have already embarked on this programme, thereby broadbasing their sources of revenues from this transaction.

Motor customers have started relying more and more on the dealers than the normal insurance agents. The dealer's sales team develops a rapport and a relationship with the customer through the entire sales process and continues to engage with the customer throughout the service process. The added convenience of the automobile dealer being the single point of contact, ideally positions the dealer to fulfill this role of an insurance agent for motor vehicles.

Insurance also helps dealers earn revenues on repairs through body shops. Vehicles normally come back for both service and maintenance to the automobile dealers, thus providing them with a significant source of income.

Handling renewals of insurance policies is yet another source of income for the auto dealers. Studies reveal that there are several vehicles plying on our roads without insurance cover, which provides a wonderful opportunity for the dealers to chase renewals. The database of the sale of vehicles and the due dates of renewals is an easy way to augment the dealers' revenues from insurance. All it needs is a good management information system at the back end to track the renewals coming up, which is definitely easy to handle with the help of a dedicated resource.

An exciting new opportunity presents itself to automobile dealers today. How about extending the relationship between the dealer and the insurance company beyond car insurance alone? Dealers can consider enlarging their relationship with the insurance company - not merely restricting it to the provision of motor insurance. Dealers can explore distributing other simple insurance products like Health, Home, Personal Accident, etc. to their motor customers; this cross-selling provides a tremendous opportunity for the dealers to improve their revenues using their existing infrastructure. Of course, a better understanding of these products and their features is a must and training is mandatory as per industry norms. But this marginal effort is definitely worth exploring in the light of its potential to supplement revenues.

Further opportunities abound with detariffication of insurance, which is due to take place by January 2007. We have less than a year to see this plan roll out.

Even though the word detariffication is frequently used nowadays, I would like to quickly explain this term a little for the better understanding of the readers who are not familiar with the term.

In insurance, certain classes of business are bound by tariff - the rates at which these products can be sold are as directed; so are policy conditions. These tariffs are applicable to all insurance companies in India.

Under detariffication, there will be a transition from administered pricing to risk based pricing. As the tariff controls begin to dissipate, the market will witness a variety of products to fulfill the need of various segments. Insurers will be able to provide products packaged to meet unique requirements and price them depending on customer profile and product features.

Detariffication will not only impact the insurance companies but also the dealer fraternity either directly or indirectly. There will be a shift to rating risks. In simple layman's term, if we are to take the example for motor cars, the premium rating from being based on the vehicle will shift to being based on the driver. Thus, insurance will move from insuring a car to insuring the customer.

For the dealer, the onus will be more to ensure that proposal forms are properly documented - since any improper disclosure would compromise the claim and also impact the premiums charged. The relationship will be based on mutual understanding between insurers like us, who will work together with auto manufacturers and auto dealers in the entire process of customer education, process mapping, data collation and renewal retention. This is one area where relationships have to be such that we can rely on each other's technical competence and judgment.

We at Royal Sundaram see an opportunity for growth, based on relationships to ensure that we continue to jointly provide customers a good driving experience.