Your Q4 profits were down nearly 4% and that has been coupled with an increase in the combined ratio. Walk us through the quarter as well as the year gone by. What have been some of the key highlights for the company?
This was a good quarter for us in terms of growth. In the first nine months, the growth was a bit muted. I am not looking at a standalone of last year because if you look at our standalone numbers, last year the growth rate was about 28% but I am looking at the number aggregating Bharti AXA book because that is the way to look at it.
This year, Bharti AXA business numbers have been incorporated. So if one looks at the company as a whole and if I add ICICI Lombard’s last year’s numbers and add the Bharti AXA numbers, the growth for the company for the year has been a shade less than 5%. But if one looks at just this quarter gone by, that growth number is significantly high and within that, March numbers are much higher.
In fact, we have outgrown the market even with the base of Bharti AXA being added to the base numbers. In terms of growth, it has been a good quarter. In terms of combined, there are two or three factors. When one looks at it vis-à-vis our last year numbers’s and when one integrates the two companies, Bharti AXA’s combined was always high and we had said that it will take us at right path of about couple of years to bring it under control .
When one looks at Bharti AXA’s numbers, before the merger announcement, they were around 120. On an integrated basis, that would anyway have been around 104. If you look at our number, last quarter which was with the Bharti AXA book added that was 104 it has come down to 103. Now coming to your profit point, there are largely two reasons; one, we had the wave three Covid losses which was roughly about Rs 27 crore for the quarter and about Rs 550 crore for the year. Apart from that there was another reason, accounting for insurance policies is such that one has to take the entire cost of source in that business upfront and take the revenue which is the earned premium over the period of the policy. So, if it is a 12-month policy and you write a lot of business in March, you take the full cost of that sourcing in March but the topline comes over the next 12 months.
Given that health has been the focus, ICICI Lombard has also managed to outpace the industry average.
That is a great question. If we believe a long-term shift is on the way and health consumption behavior is going to change, this is not just because of the pandemic and the digitization that we are seeing but that has been a global trend for some time.
We believe that health consumption will be very personal, very self driven and very digitized in the long term.
Traditionally health insurance in India has focussed on just the hospitalization costs. But healthcare is about the continuum of preventive care, wellness, fitness, hygiene as also outpatient care – the normal doctor visits and hospitalization. That is the approach that we are taking. If you look at our approach on our app, we are providing the entire continuum of care including pure insurance policy for OPD costs as also the wellness, the preventive, the advisory, the fitness and all of that which we are talking about.
All of that is something that we are building on and the other thing that we have seen is people willing to consume health on a digital mode. A lot of tele health, lot of video based consulting, increasingly home-based care if the ailment is not very severe. All of these are components that we are building and over the last two years, a lot of it has been built out. We are now investing in terms of scaling up distribution.
How are you managing the risk in the crop insurance business? What is unique and how do you see it performing in the coming years?
Till we did the integration with Bharti, we did not have any crop insurance business. We used to write crop earlier but we went out of business. With Bharti acquisition, we have inherited some of the crop businesses that they were writing about.
In the crop insurance business now most of the commitments are for a longer term period so we will stay invested in that business for that period. In terms of what we are seeing for the Bharti book, it has been profitable even for us in the integrated business for at least for the year gone by. We believe it will be profitable. We are watching the entire crop cutting experimentation before we take a final call on profitability. We
How are you seeing the demand momentum in the motor insurance and fire insurance segments?
For the year gone by, the motor insurance sector was very tepid. One of the biggest shifts that has happened this year because health has grown well, motor has not. In the overall basket of these segments, health has become number one for the general insurance industry.
Traditionally motor has been the biggest segment but this year, for the first time, health constitutes about 33% of the market and motor roughly about 30-31% of the market. This is in a sense quite a bit of shift for the industry. But this was largely driven by the fact that new vehicle sales were muted.
We believe that given the underperformance for two years in two-wheelers and one year for private cars, we should see some growth momentum come back. We are hopeful that the chip shortage issue will also get ironed out in the next five to six months and rural demand will pick up for two wheelers. So we are optimistic about the motor segment looking ahead.
Health has had a good run in terms of top line and we believe health will continue to grow because it is a very underpenetrated sector and there is a clear understanding of the need for adequate health insurance in the mind of the consumers. So that is also a positive. We are also seeing a lot more investment in infrastructure now. So we see positive momentum even in the commercial lines.
I understand you expect that premiums will continue to see growth in the current environment. Are you seeing higher risk, especially in health and also because the cost of vehicles have gone up?
Yes. Inflation has an impact for all of us and you have rightly identified the aspects of inflation as it affects our industry. In the case of motor insurance, we have taken some small price increases, largely driven by the fact that motor pricing was very aggressive because as an industry, for the last two years, people have just gone for market share, maybe hoping for some frequency drops in terms of claims but that is behind us.
We are reasonably back to normal frequency in terms of claims and we are seeing some amount of inflation. So, we have taken some single digit price increases in the motor segment for the private cars.
On the PP side, the claim inflation are driven by court orders and wage inflation. That inflation has been a double digit number for the industry for a long long period of time but for almost three years, we have not had a price increase because it is a regulated product and in the last couple of years, we have not had a price increase. We are hopeful that this year we will get to see the price increase.
On the health side, we are not thinking of a price increase for our retail customers largely because in spite of the fact that as an industry we paid Rs 25,000 crore of claims on the Covid side, the total profits is roughly about Rs 4,000-5,000 crore and the industry has paid over Rs 25,000 crore claims and we have not gone out seeking any support or help from anyone. We have taken it in our stride. But in spite of that, we are not seeking that kind of a price increase.
We are not even planning an immediate price increase on the retail health portfolio because these are one-off episodes and will not sustain. What we do however worry about is the healthcare inflation and there is a need for more discipline in terms of pricing and because there is an affordability factor. Healthcare providers should not inflate the cost of healthcare. If that happens, then in the future we may have to increase prices.