This interview was first published in the IIB Bulletin, 2015, Vol. 1, Iss. 3, pp4-5https://iib.gov.in/IRDA/Articles/IIB%20Bulletin%20Q3%202014-15.pdf
Howe is a Fellow of the Institute of Actuaries of Australia and holds a Masters of Economics degree from the University of New England, Australia. He has authored and co-authored several books in the area of General Insurance.
In a conversation with Dr. Nupur Pavan Bang of the Insurance Information Bureau of India, Howe talks about his experience with the Indian Insurance Market, from the perspective of a man who has worked in many different markets.
What is your take on the Indian Insurance market?
The first thing that strikes me is that it is difficult to sell insurance in India. People are willing to take the risk of not being insured. Even Life insurance is challenging. My current focus is general insurance. The Indian market is structurally unsound with industry Net Combined Operating Ratio (NCOR) in excess of 150% in recent times; even with investing the ‘float’ aggressively it is not possible to be profitable.
General insurance companies should be making money from accepting underwriting risks and therefore are uncorrelated with market risks. When NCOR rises above 100, GI companies become asset managers correlated with markets.
What according to you are the strengths of the Indian market?
If we look at the S-curve relation between per-capita income and insurance penetration, India still has very low penetration. The Life business has a penetration of about 3% and the Non-Life business is less than 1%. As the middle class emerges with the penetration rising to 8-9%, the Indian market will be very big.
What are some of the challenges that you face while working in the Indian market?
There are several. In my view low FDI inhibits innovation. Retaining state-owned insurance companies with large market shares inhibits the development of sound competitors with rational pricing.
What are the kinds of innovations that the Indian market needs right now? What would you like to see the market doing that it is not already doing?
By definition, innovation is difficult to predict and it has a 'non-linear' effect on markets. But the existing trends are clear and have a long way to go yet. Customers increasingly are accessing all services through mobile technology and this is equally applicable to all forms of insurance. Secondly, providers of services, including insurers, seek at least some customisation and timeliness to their product offering based on the unique characteristics of the customer and what they happen to doing at that moment in time. To give some reality to these abstract ideas, imagine a customer is purchasing Canadian dollars at their bank in January. There is a fair chance they are considering skiing on a holiday. There is a need to check the bank's records for whether the customer has travel insurance and if it currently covers skiing. The right offer in real time, by mobile or by the banking staff if in the branch, is the need of the hour. It could be a travel policy covering skiing or an extension to an existing policy to cover skiing. GEN Y is already thinking this way.
Do you have a view on the Insurance Amendment Bill which has been referred to the Select Committee of the Upper House of the Indian Parliament? Does 49% Foreign Direct Investment interest you?
The short answer is yes. The long answer reflects the need for sound development of the industry for meeting the insurance needs of Indian consumers and businesses. Insurance has a significant role to play in the further economic development of India.
So where is the market headed?
Things have changed a lot since 2005-2006. Good thing about India is that it is flexible in dealing with Governments. It moves forward, in spite of the political party at the helm.
Infrastructure has improved. People are getting a taste of the digital experience. New businesses are making progress, like travel insurance and medical coverage. There is a lot of introspection happening. Market has started talking about cost of distribution and expense ratio management.