NK Kedia, Executive Director (Marketing), Iffco-Tokio

How will detariffing third party motor insurance impact the industry?
Detariffing has given freedom to the insurance industry which, in the past, felt like a caged lion. However, we must handle this freedom carefully and it will take some time for industry to get used to the new scenario. The Insurance Regulatory and Development Authority (IRDA) and the ministry of finance have done a very good job with the creation of an Indian motor pool. Even though detariffing will have an impact on the bottomline because of the claims, its success will depend on how well this motor pool works.Finally, customers will gain. Previously, they found it difficult to find insurance companies or agents willing to take their premiums for third party motor insurance. Now the industry is running to take on this premium. We hear that some private players have already started taking only third party premiums.

How will the motor insurance industry and individual players realign themselves in this scenario?
There are issues that still needed to be ironed out. As of date, there is no freedom on the terms and conditions, but this will change post-2008. Once this is done, there will be a lot of product innovations. Services tendered at various insurance companies will increase and standards like delivery of policy and claims at one’s doorstep, online issuance of policy and OTC products will become a realty. Hassle-free claims will be one of the major boons for customers. The time for settlement will also reduce drastically. Competition will intensify and insurance companies could initially face a strain on their bottomline. Once any insurance company is established in the market, it will go well beyond and become a leader.

What kind of impact do you see on bottomline?
Basically, competition is very good and healthy if it is really kept within the (normal) boundaries. However, in various countries, companies forget boundaries and offer reckless prices. Once this happens, it hurts bottomline and leads to uncontrolled growth. In my view, some players will act in this manner whatever the control mechanisms. We cannot expect everyone to exercise control. In Indonesia, one-thirds of companies shut down after detariffing due to solvency margins. When we reduce prices, claim ratios are going to increase and this will hit the company. There is no definite way to measure this right now. But there will be turbulence and one has to steer through this period with controlled aggression. We see detariffing as an opportunity rather than a threat.

Some circles have commented that the motor pool will incur losses in the initial period.
I do not agree with this view because third party claims take time to be settled. In the first two years, the motor pool will have no problems. It will be tested only after this period. Basically, the claim handling system of third party motor pool must be managed properly. It has to improve and a few systems should be put in place so that it synchronises with the legal system as well.

What should the Indian motor pool do to work efficiently?
A lot will depend on the understanding and the team spirit of all members in the motor pool. It is important that we work together and not start fighting over the cake. This will drive the performance of the motor pool. Many things are still not very clear though. General Insurance Corporation (GIC) will be a key element of the pool and it is mandatory for all companies to be part of this. There are many things that are yet to be defined like what will constitute the board as well as the organization structure. Such matters have not yet been agreed. So unless and until all this is defined, agreed unanimously and put into action, things will not emerge clearly. I think GIC has a lot of wisdom to settle these matters properly.

IRDA’s defined framework for third party premiums across different vehicle categories has come in for flak. What do you have to say?
IRDA has set up premiums keeping in mind what they were getting in the past. This is to prevent the motor pool from incurring losses. They are also considering various directions to make it work. I am certain detariffing will help the nation in a long way. However our legal /claims handling systems of third party premiums and our organisation structure must substantially improve.

Has the process been handled well given that some consumers are surprised?
The surprise will come more from the own dimension (OD) party than the third party premium. The percentage of third party premium compared to OD premium for car and two-wheeler drivers is very low. It is one one-sixth of the total part, so the increase of this will not affect them much. More importantly, detariffing is going to bring the motor premium rate in India in line with international levels. There are aberrations but these will become smoother in a few years. Overall, the motor segment will give a lot of strength to the insurance industry with respect to premiums and stabilising operations. Society, in particular, will gain from this detariffing. Safety will play a major role since there will be penalty for rash driving.

How will detariffing specially affect your operations at Iffco-Tokio?
On individual companies, the impact of the motor pool is yet to be gauged. There will be problems with bottomline but it will depend on the functions of the motor pool. If we can make it function efficiently, the problems will be solved. The motor pool will integrate total efficiency of all companies at one go. It has been working well in Japan. In other countries, some facilities of the pool have solved certain problems. In our case, we have underwriting controls, underwriting guidelines and guide our people to select the risks properly. These are the management systems by which we are drawing the line at which we should enter into the competition.

What steps has Iffco-Tokio taken to prepare itself for a detariffed market?
We are fully prepared for this and have aligned our claims systems. We are taking this further up. When we started this company, we contemplated bringing in the international technology of Tokio Marine with respect to claims settlement to India. There are various restraints in India in terms of availability of software and trained people. Tokio Marine has created a system of total assessment in Japan which they provide to other markets and gives clients many facilities. Prior to claims, they provide an innovative mapping system, knowledge of safe driving and training. After the claim, their services include providing a replacement car and settling claims quickly. Such facilities are going to come to India and companies that work on this will be the winners. At present, we have five claims services centres that are unique. For example during the January 26 flood, we settled our claims very fast through our innovative claim management system. We are also entering tier 2 and tier 3 cities to develop people and create awareness. This is going to give a lot of strength to provide these services. We are training our staff on providing good claims, creating awareness and interacting with people. We are the only company which has gone on an innovative training and developed a software program. We have trained over 1,000 people and have more than 3,000 agents to provide this software. We have also developed a CRM (customer relations management) system by which we can provide on the spot policies. It is being developed and implemented in 60 centres where we are issuing motor insurance policies through our intermediaries.