Your views about the ongoing reforms in the insurance sector?
The liberalisation process has become a fait accompli. The government is in the process of issuing licenses to new players. There will be lot of foreign and Indian players entering the fray either alone or in association with somebody. The process is expected to be over in a couple of months time. There will be more players and products in new packages coming into the market soon.

But more than the liberalisation itself, what is important is the internal reforms of the existing companies. What we are going to witness is increased completion on all fronts. Old players should strive hard to keep floating by changing their approaches to the business. Both access and delivery systems need to be streamlined. With the entry of more intermediaries, the old policy of selling products directly will not help any more. Earlier, insurance was sold by employees of the company itself. Now, the government has allowed multi-layer marketing with the entry of agents and corporate agents selling policies for a commission. The success now hinges on the way these issues are addressed. Existing companies should adapt to the new environment and learn to live with it. The new policies have not only changed the rule of the game but the game itself.

Do you feel threatened by the entry of more players into the market?
Not at all. In fact the entry of new players will help the market to expand. India is a large market and has room for many players. Look at the US market. There are over 2,000 insurance companies operating in the US market. So, given the size of the Indian market, there is enough space for many players in the Indian market. But, the existing players need to gear up to take on the challenges as initially new players are going to eat into their market share.

Will the new policy reduce the cost of insurance?
I don't share the general view of the industry that the competition will bring down the cost of insurance. Rather, in my view, it will push up the cost of insurance. For instance, under the direct selling regime, the commission for agents for selling the premium was as low as 2.5 per cent.But the IRDA allows the commission to be hiked to 15 per cent to 17.5 per cent. This high cost of intermediation will eventually get reflected in the premium level. But the degree can be different. Therefore, the companies will see their margins shrinking and the survival depends on the volume growth. But the customers will be benefited immensely as the access and delivery mechanism will be streamlined and will be made more friendly.

So, the premium will go up?
Sure. But not necessarily in all cases. In some products it has to be. Some of the products, at present, are offered at a very high discount compared to the price of the same products in other developed markets. For instance, the cost of insurance in the personal lines of business like third party cover to motor vehicles, small business etc are substantially lower in India. In other products like cargo insurance etc it is at comparable levels. On the other hand, you have the cost of intermediation going up substantially. Therefore, a price correction is inevitable.

So what are the positives of new initiatives?
Well, it will definitely improve the efficiency of the sector by increasing competition. It will also streamline the access and delivery of insurance products. Besides, there will be a lot of spill over benefits to the consumers to name a few.

The negatives?
Well a direct fallout will be the increase in premium. As I said already, the market is going to be driven by the intermediaries which will push up the cost of insurance. In view of the high underwriting losses, the insurance companies can only adjust to this by increasing the premium of the products. A second impact will be on the re-insurance segment. The existing 90 per cent level will be hard to maintain. A third impact will be on the coverage. New companies, with little experience in the Indian market may tend to withdraw from underdeveloped areas like the North Eastern region.

Where do you see your company three years down the line?
We will have a steady growth provided the economy is doing well. Insurance business has a positive correlation with the economic growth as the business growth depends on the growth in per capita disposable income of the people. Besides, we are in the process of streamlining our business lock, stock and barrel and the new game plan is already set in motion.