FI way to Banking, Insurance synergy

Bhargav Dasgupta

PMJDY holds great promise for the insurance industry, as the sector has faced challenges in reaching out to micro markets in a cost-effective manner says Bhargav Dasgupta, MD & CEO, ICICI Lombard General Insurance Co Ltd, in conversation with Elets News Network (ENN).

Bhargav Dasgupta

Give us an overview of the insurance industry in India and ICICI Lombard’s position.

It has been 15 years since the insurance industry opened up. It is more than `80,000 crore industry and showed healthy growth over the years. Only in the last year, growth saw a little slower pace. I think the opportunity is huge. In terms of penetration and global scenario, in India, it is still less compared to other developed and BRIC countries. This kind of opportunity keeps us excited always as the market is still under-penetrated. The economic progress increases per capita income and that always results in higher penetration into the insurance sector. Global studies have shown it.

That is why we are very optimistic about the growth in the penetration level. Our focus has been to serve our customers in a sustainable and stable way, as well as making our business models viable. By putting in efforts in analytics for risk selection and by using technology, we are always trying to make the business viable. We believe in technology and we are by far ahead of others in terms of the online insurance sector. We are also focusing on using mobile space.

 How much of innovations are taking place in the backend to create products in terms of crop insurance, health insurance, etc?

 In the last five years or so, a maximum number of innovations have taken place in this area in reference to the insurance sector. Let me give you an example of crop insurance. The traditional crop insurance, that was prevalent, basically was more about claim reimbursement product. But it was a time-consuming process.

ICICI Lombard brought in parameterized weather insurance. This was one of our innovations. It started ten years back, but gained steam in the last five years. It is based on correlation and we analyze the pattern of rainfall in a particular area. So if the rainfall is less than 20 percent, one automatically gets 50 percent of the claim. It has made the cash flow much faster. It is a big innovation with respect to crop insurance. In the field of health insurance, I must say that the Rashtriya Swasthya Bima Yojana(RSBY) initiative was a remarkable innovation which has been globally recognized as a brilliant social insurance scheme. It is an innovative way of looking at health insurance.

Vision followed by action. This seems to be the mantra for the new government. “Pradhan Mantri Jan Dhan Yojana (PMJDY)” has helped the new government to open record numbers of bank accounts in a short span of time.

Where do you see the entire program going forward and how insurance sector can play the role of an effective partner in the Government of India’s new vision for financial inclusion?

 It is an amazing development in terms of penetration that has been done by PMJDY. This is a very important first step for effective financial inclusion and getting more people to be included in the commercial banking ecosystem as one cannot do anything without the banking element in it. That is the foundation for any kind of financial services. I think that the initial efforts will focus more on remittances, DBT and getting these accounts transactional. There is huge scope for the insurance sector thereafter. In the past, we have faced challenges in terms of distribution (as in reaching out to the micro-markets) in a cost-effective manner, particularly in rural markets and in terms of payments.

There are lots of challenges when we deal with cash mode of payments. If we can make a system of payment through the banking ecosystem, it will make all of our tasks easier. So together all of these make a strong foundation for the insurance sector. It was announced that the customers will be given insurance when they open new bank accounts under PMJDY program.

It has made the account opening prospect more attractive. But I am seeing the larger opportunities thereafter. With the banks opening these kinds of accounts, it will bring opportunity for us also to work with them closely. I must admit that in the last few years, the government has really made a healthy progress in terms of social insurance. People who are staying below the poverty line, the biggest day-to-day worry for them is livelihood and post livelihood span.

People first think about some sort of micro-savings, thereafter, they take a step with regard to insurance. Studies show that micro insurances are a very important element for the long term economic stability for the poor section of the society. Social insurance plays an important role in this scenario, where usually the government steps in with some amount of premium subsidy and the balance is paid by the individual and the insurance companies can then go and distribute their products. So I am looking at that entire roadmap and that is why I am saying that PMJDY is a positive first step.

 Do you think that it is viable for your organization to partner with banks rather than following a standalone distribution model?

We always focus on doing things in partnership. The entire crops insurance sector, where ICICI Lombard plays a big role, most of the distribution is done through cooperative banks and that is the biggest channel of distribution. Otherwise, the cost of distribution will increase. New models of distributions are also evolving. Insurance Regulatory and Development Authority of India (IRDA) has allowed Common Services Centers (CSCs) to distribute simple insurance policies.

 It is still early days and we have to see how it scales up. On the other hand, cash management and payment mechanism system is getting Philip as it is being done through banking ecosystem. I think that the payment part in the insurance sector is moving towards more on cashless transactions mode and even on the claim side, some of the social insurance policies are largely cashless.

What is your expectation from the State government to help increase the penetration index in terms of crop insurance, health insurance and other forms of insurance?

I think that the government should continue to focus on the entire economic growth of the state. Insurance follows economic growth. On the other hand, insurance on catastrophe and insurance for those sections of the society, who focuses more on livelihood first, should be emphasised too.

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