Kotak Mahindra General Insurance Company (Kotak GI) is a 100 per cent subsidiary of Kotak Mahindra Bank. “That is unique”, says Mahesh Balasubramanian, Managing Director and Chief Executive Officer, Kotak GI. It is the only bank promoted 100 per cent Indian-owned general insurance (GI) company. In an interview with Free Press Journal’s S Narayanan and R N Bhaskar, he spoke on his company’s genesis, growth path and his prognosis for the GI business.
GI industry was opened in the year 2000. Why did Kotak GI take shape in only 2014?
It was always on the radar. For certain reasons, we decided to wait for the market to get structured. Some issues were not giving us comfort. De-tariffication happened in 2005-06, pricing became free market, and it was not really moving in the right direction. Then decline pool – third party pool – was set up in 2010-11. It was very difficult to assimilate all this into the business plan. We decided to take the plunge in 2014. Most of the larger issues had been cleared by then. We could see a better, clearer runway.
What prompted you to venture without a foreign partner?
We, at the Kotak group, did not feel the need for one. We had capital and a very strong brand within the group; managerial talent, expertise and technology could be acquired within the country. The only area where we could have got global expertise would have been when doing specialised lines of business like large commercial insurance – ship insurance, insuring an oil rig, aviation insurance. Then we realised we may not be looking at those lines of business.
How has your experience in the market been since then?
It has been as per plan. We are working on a few fundamental principles. First and foremost, we believe, as does the Kotak group, scaling with profitability is the only way to go. Second, we are in risk management business where underwriting prudence is at the heart of the whole operation. There is a difference between being prudent and being conservative. Third, we are very focused on building competencies and strengths on claim settlements.
Then comes the range of products. We believe we should have products that cater to every segment of the market. Range is also important for diversifying risk – the more you spread across multiple geographies, products and channels, the safer you are. Lastly, we want engaged employees – we are in a people-driven industry where culture and ethos will take us forward in a sustainable way. In a nutshell, it is all about building scale with sustainability and make sure we build a company for the long term rather than keep looking at the next quarter and the next month.
Kotak GI’s share capital is Rs 220 crore (as on 30-Sep-2018). Are you adequately capitalised?
At the Kotak group, capital is not a constraint and we are very happy to continue to invest as we keep growing. No point in taking capital in advance and not putting it to good use. At the same time, we are aggressively building scale – keeping the mind the principles we spoke about. First year, we did about Rs 85 crore (in FY 16-17) and next year about Rs 188 crore (in FY 17-18). We hope to cross Rs 300 crore this year (in FY 18-19) (in gross written premiums).
We are growing at a good pace which we are comfortable with. Our policy issuance has doubled, call centre volumes and claims have increased four times over the last year. At the same time, turnaround times of various service parameters and settlement ratios have only got better. One should have the ability to manage that scale – at the end of the day we are in a customer service business.
When do you plan to start generating underwriting profits?
We believe we should break even in the years 2021-22, 2022-23. Good insurance companies should break even between fifth and seventh year. We are on track.
You have got into motor, health and commercial lines of businesses. What is your product strategy?
We want to build a portfolio that is balanced. One business we do not want to do is crop insurance. Given our size and state of evolution, I do not think we are in a state to manage that business. Eventually, we would want 55-60 per cent business from motor, about 30 per cent from health and 15 per cent from commercial.
What is Kotak Bank’s contribution to Kotak GI’s sales?
About 60 per cent of business comes from the Kotak ecosystem and the balance coming from outside. We believe that number would be 40-60 in next two-three years’ time.
What is the GI industry doing to control frauds in insurance?
Given the technology advancements and the environment today, I think we (are underpitching our) have the ability to pool in data and handle frauds. As an industry, we can squeeze out 5-10 per cent of claims ratio from frauds if we all work together. We are issuing 18 crore policies and settling 4.1 crore claims. This shows a lot of data is available. Each company is doing what it can do. Cumulative efforts can give exponential results here.
The regulator and the GI council are talking about it. We will see some developments (on this front). The second aspect is KYC. As an industry, we do not take KYC. These two areas can be game changers and help reduce frauds. This would be very positive for the entire industry. It could lead to better return on equity and better pricing for customers.
Insurance is getting embedded with certain products and this trend is catching on. What is your view?
That is the next wave of insurance. It has caught on in China big time. We call it shorter duration, small ticket, and large volume. This is a very interesting space. You will see a lot of innovation happening there. We are doing certain things (in this space) with the bank and also outside of it. When we are ready for it, we will talk about it.
All of us are looking at this space which is innovative and challenging. This will also go through a process – acquire customers first, then understand losses, and so on. It will go through its own evolution and reach a steady state, become a large and profitable line of business.
How do you see the industry evolving over the next five years?
Insurance penetration is just 0.93 per cent. Even countries around us have higher penetration. There is a huge pent-up demand that has to be catered to. There is also a huge amount of underinsurance. We see manifold growth opportunities here. Our economy—most agree— is likely to grow at around 7-8 per cent. We are yet to see the capital cycle kick in. This will boost our growth prospects even further. I do not see why the industry cannot grow at 12-15 per cent.
Technology and digitisation will drive down costs and improve customer experience. Customers are going to get more benefits; pricing would remain customer friendly as the level of competition would remain the same. Insurance companies will face the challenge of managing disruptions. Consolidation will also happen – this industry already has 33 players. Companies have to become far more efficient; business focus will shift from top line to efficiency; race for top line will have to slow down; we are already seeing that happening in some companies. Our industry will become far more responsible with capital.