What after Jan 01, 2008

Jan 1, 2008 the day when total detariffing will take place in the Indian Insurance market. Lots of questions arise among the industry professionals when we think of this. Which way will the market move? What will be the pricing structure like. To what extent will the prices drop? Who will lead the show? Will any M&A game take place? Will any player be wiped out? What are the beneficial factors for the consumer along with the pricing. And the list of questions goes on.

The first thing and rather the most important factor. How will the pricess move. Looking at the first phase of detariffing for Marine and thereafter the second phase beginning Jan 1, 2007 for other tariffed products. The prices are very much expected to go down. But considering the fall in prices during the first phase of detariffing a further fall pops up many questions for the insurers like:

1.) Maintaining the profitability. (Profitability here stands for underwriting profit which is a ratio of claims paid, claims outstanding, management expenses, IBNR added together divided by the total earned premium) .

2.) Maintaining solvency Margins: This area will really make the industry honcos in the companies rub their brain. Detariffing although will make the co.s cautions in terms of risk selection but in no ways will this affect the frequency of claims thus making it a bit tougher for the employyes of new co.s .

3.) Impact on the commissions for the channel partners: A very important question as insurers depend heavily on these channel partners to get their business. They are the face of the insurers in the market and the first point of contact for the customers. Their job doesnot restrict upto selling rather extends to servicing of customers. Reduced premium might lead to a sharp downfall in commissions thereby increasing the costs of these channel partners and hence effecting the service levels.

4.) Maintaining the service levels: Reduced commissions might impact the service levels extended to their customers by the channel partners.

5.) Overall growth of Industry: Still a question in everyones mind. Yet with the existing players becoming more agressive and entry of new players good growth is expected this year.

6.) Reinsurers outlook towards accepting risks: This will be very important as every insurer needs a reinsurer support especially for insuring large risks. Premium reduction will eventually make the reinsurer cautious in terms of accepting risks. Insurers having sound risk management practice will benefit in the scenario by getting resinsurance support with much ease.

7.) What will be the impact on the product portfolio mix of the insurers: Motor insurance till date occupies the major portion of the insurers portfolio in India followed by Fire. Other major line of business Health which still is low profile is expected to pick up post complete detariffing. This is because with motor and Fire prices going down further insurers would come aggressively in marketing Health products so as to make up for their reduced premiums. Again marine rates might move northwards to compensate for the premium downfall. This will reshuffle the overall product portfolio pie of the insurers. Retail business will be the focus for the insurers to enhance the penetration. Insurers have already taken measures for this by enhancing their presence in Tier II, III cities.

8.) Talent Management: Another important aspect of this phase will be talent management. What remains the growth scenario is yet to be seen. Speculation about dip in overall premiums is strong. Insurance is one of the industries where job opportunities are increasing with the industry growth. A premium dip might affect the hikes and perks offered to the employees making the sector less lucrative to work for and hence lack of good talent. Also entry of new players in the market will make the HR departments run for employee retention.

The saying of Customer is the King will come true as he will be the actual beneficiary. The hunger to grow and clinch more business not only passes on the benefit to the customer but also educates him about the product its benefits, hidden facts and figures, competitor products etc. which otherwise wouldnt be known to him in a tariffed regime.

The other benefit which the customer will get is product differentiation. Not every insurer will be able to offer rock bottom prices. Some might be winners in terms of prices but some others in terms of differentiation and services. Though price is important but not in every case when the customer has the benefit of getting a customized product as per his choice.

Amidst so much speculation and excitement regarding detariffing the fingers of every stakeholder of this industry are crossed with just one sentence to speak "What will happen next".

Where is the Indian General Insurance market heading.

The Indian Insurance market after opening up in 2001 has come up a long way. If we talk about the General Insurance sector specifically the private players have proved to be very strong competition for the PSU players. The market which was supposed to be much cleaner in the tariffed scenario has become more of a mess after detariffing coming into existence from Jan 1,2007. Although this means flexibility to the Insurers in pricing their products upto a certain extent but has initiated a price war among the players. Customer has been the major beneficiary in this whole number game. Be it a retail or a corporate customer both have their own share of perks in terms of getting the best deal in getting the requisite insurance. But what the insurers need to be wary about in this detariffed scenario is to follow the best underwriting practice. A large drop in pricing can prove to be a big dent on the bottomline of the insurers. The scenario is that not dropping the prices means loss of business and large drop in prices could impact the profitability. Although IRDA has capped the discounts on rates still not every player is in a position to drop the rates to the maximum extent. This makes it easy for some players to increase their topline with lesser efforts. What I personally feel is that this has not left a uniformity in the competition.