"Digital transformation of the insurance industry accelerated during the pandemic"

What are your top three strategic priorities as the CFO of ICICI Lombard General Insurance?

Well, to put it simply, my focus is on three fundamental areas:
•  Corporate governance and enterprise risk management – the two fundamentals of a resilient and sustainable organisation
•  Continuous communication with stakeholders given the uncertainty in the environment
•  Building an organisation which bases its decision on the environmental, social and governance (ESG) considerations.
These are the top three strategy level priorities for me.

What is your outlook on the general insurance sector, particularly with respect to technology playing a key role?

With the integration of technologies like artificial intelligence, block chain and drones entering the insurance mix, the sector is being forced to rethink its business modelling and strategic approach. Customers are essentially seeking more digital touch points for convenience as they experience that degree of personalisation in their personal lives as well. The continued reliance of consumers on digital technologies that support mobile applications, extensive social networking, on-demand services and similar options makes it clear that the mass market has entered a new phase. The insurtechs to an extent have been disruptive, because when they do come in with their new models, they have a different pricing structure as well as different experience. This brings a disruptive factor to the industry.

In contrast to experienced insurance companies, which have years of data available for reference and have significantly relied on time-tested actuarial approaches, the start-up competitors tend to employ machine learning analytics and draw upon thousands of data elements to provide personalised analysis and drive insurance purchases. Big data has played a key role in transforming practices which have resulted in better pricing of health and wellness plans. Besides big data, artificial intelligence (AI) and its related technologies will have a significant impact on all aspects of the insurance industry, from distribution to underwriting and pricing to claims.

Advanced technologies and data have played a key role in impacting the distribution and underwriting practices of an insurance company with policies being priced, purchased and bound in real time, particularly in the retail insurance space. In April 2021, a report published by Global Data forecasts that AI platform revenues within insurance would grow by 23 per cent to USD 3.4 billion between 2019 and 2024. The above is further accentuated by the fact that millennials who are also a target segment for insurance are accustomed to operating in a digital world.

Having said the above, the experienced insurance companies are also increasingly leveraging of technology-driven platforms and are providing various direct-to-consumer platforms which transform the buying experience for individuals seeking personalised health and wellness solutions and motor insurance covers. Digital transformation of the insurance industry accelerated during the pandemic as a growing number of consumers turned to digital channels to shop for insurance solutions. Initiatives which would have taken a few years to conceptualize and implement have been fast-tracked and have gained significant traction in the pandemic era.

This has gone a long way in prompting leading insurers to invigorate their digital transformation initiatives. Given the thrust on technology, the belief is that the future of insurance will be a hybrid model where consumers can choose either a digital or traditional experience and gracefully move between these options with ease, convenience and efficiency. The experienced insurance companies are well-positioned to adapt to the requirements and thereby provide a sublime customer experience on the digital side as well as the traditionally adopted in person customer experience to lend a personal touch to the customer interactions.

How did the second wave of the corona virus and spike in cases’ claims impact Q1FY22 earnings of your company?

The second wave of the pandemic in our country that peaked in May 2021 has been devastating and much steeper than the first wave that peaked in September last year, consequently derailing the growth recovery that had commenced in the second half of last year. However, the pace and scale of activation along with the fact that lockdowns are localised is expected to help the revival of growth. There continue to remain challenges for the economy given the risk of a third wave, disrupted supply chains, aggregate consumer demands and the large contractions still seen in certain specific sectors.

The main challenge during the second wave was that we saw a significantly higher number of reported virus claims’ cases and a longer reporting tail than what we witnessed in the first wave. Although the average stay period had come down during the second wave, the moderate and critical cases had substantially increased and so did the cost of stay in these cases. Also, unlike the first wave, the second wave impacted the affluent class having better insurance penetration and higher sum assured. The pandemic-related claims reported for Q1 FY 2022 of this year has already crossed one million in comparison to 0.98 million cases in the whole of last financial year of which 4 per cent of the claims were reported with us.

The combined ratio of ICICI Lombard increased to 121.3 per cent in Q1 FY 2022 compared to 99.7 per cent in Q1 FY 2021, which included the actuarial practices-related assumptions of a thick tail of claims to factor in the delay in reporting of health claims. The combined ratio includes impact of pandemic claims on health book of Rs 6.02 billion of which Rs 3.84 billion of claims were incurred and the claims incurred but not reported i.e. the IBNR provision was to the tune of Rs 2.18 billion in Q1 FY2022, as against Rs 0.20 billion in Q1 FY 2021 and Rs 3.39 billion respectively in the whole of FY 2021.

The reason for the combined ratio to be elevated for this quarter was predominantly due to a significant surge in cases intimated from just about 1,300 cases in Q1 FY 2021 and about 50,000 cases for the whole of FY 2021 to about 46,000 cases just for Q1 FY 2022. Whilst we cannot predict the way the pandemic will pan out, as a company we continue to stay focused on building a profitable growth portfolio coupled with sustainable value creation.

What are your growth levers?

Our growth prospects are based on four fundamental levers:

✓  Sublime use of technology in core areas of sourcing, claims management, customer service management and employee engagement  We are a multi-line, multi-product company which makes it possible to grow in all segments where there is an opportunity
✓ We have a strong balance-sheet with a health solvency margin which makes it possible for us to grow through re-investing our reserves to fund organic and inorganic growth
✓ We are a customer-centric company where our focus has been on innovating and offering value-added services to our customers to supplement offering an insurance cover. We truly are of the customer, for the customer, by the customer.

How has your experience been as CFO one of the leading private sector general insurance company in India? Can you tell us about a challenge that you successfully faced while leading the company?

My experience as the Chief Financial Officer and Chief Risk Officer of ICICI Lombard has been one which has been memorable in the true sense of the word, full of exciting challenges and significant professional satisfaction. Making ICICI Lombard the first non-life insurance company to be listed in India, leading the inorganic growth initiatives of the company, and ICICI Lombard becoming the first company in India to receive the ISO 31000:2018 certification in enterprise risk management from British Standards Institution (BSI) have been milestones I will surely cherish.

The impact of the pandemic has been unprecedented in terms of having to re-calibrate our strategies and carefully assessing and re-assessing the entire business model, workflow mechanism and core operations management of every segment or line of business. Successfully navigating the current uncertain and volatile environment, and focusing on building a resilient and sustainable entity has been a priority. As a company we look forward to continue adding value to all our stakeholders.