In conversation with Gopal Balachandran, CFO, ICICI Lombard General Insurance Company Ltd

In this exclusive interview, Gopal Balachandran, CFO, ICICI Lombard General Insurance, talks about how despite the impact of the pandemic and the slowdown in the automotive industry, the company has done well with its strong focus on adapting digital operations and improving efficiencies across the value chain

What is your outlook on India’s general insurance industry? Can you highlight the key high-growth segments and other developments that have materialised post-pandemic? 

The Indian general insurance market was significantly underpenetrated at 1 per cent in calendar year 2020 compared with other emerging markets, as for example, China with 1.9 per cent penetration and developed nations like the USA where penetration stands at 9 per cent. This is as per the findings of the Swiss Re 2021 report. The general insurance industry has delivered gross direct premium income CAGR of 15.8 per cent for the last 13 years i.e. FY 2008-21 since de-tariffication and has shown resilience despite the pandemic.

In the recently concluded fiscal, the industry delivered a mixed performance. As per the data published by Society of Indian Automobile Manufacturers (SIAM), new vehicle sales witnessed tepid growth in the private car segment on the back of supply chain challenges. The two-wheeler segment remained far from recovery while the commercial vehicle segment has shown growth supported by underlying demand. Health insurance, on the other hand, contributed significantly to the overall industry growth in line with expectations.

In fact, it is now the largest contributing segment to the gross direct premium income (GDPI) of the industry. The commercial lines witnessed robust growth in sync with the current market environment. The overall outlook for the general insurance industry in India is positive, especially on the back of strong automobile demand, better coverage through health insurance and increased capex by the government as indicated in the Union Budget 2022 along with increased infrastructure activities.

ICICI Lombard reported a 9.53 per cent year-on-year drop in net profit for Q4FY22. What factors are responsible for this underperformance?

The general insurance industry delivered profit after tax (PAT) CAGR of 2.4 per cent for the last 13 years since de-tariffication i.e. FY 2008-21. The company, on the other hand, delivered PAT CAGR of 22.7 per cent over the same period last year. This was a result of deploying various strategies and being focused on the quality of underwriting while growing within the preferred segments. The company has over the years built a resilient portfolio mix that is well-diversified and led by preferred lines of businesses such as motor, health and fire. During FY 2022, the industry as well as the company continued to face headwinds such as no motor TP rate hike, adverse judgement for setting motor TP claims and the impact of the pandemic.

All this will attain normality in time to come. The company is currently in an investment mode. We are building digital capabilities and our health line and hence the combined ratio may look elevated in the current form. We are confident of the current growth levers and our efforts are directed towards improvement in performance. Here are some salient factors related to our growth strategy:

• The company is currently on a growth trajectory given the recent investments made towards strengthening its diverse distribution channel. It intends to expand across distribution, digital, technology and claims service. Towards this it has planned additional investments in the range of Rs 1 billion to Rs 1.50 billion during the year.
• The recently concluded transaction of integration of the company with the non-life business of erstwhile Bharti Axa General Insurance is testament to the fact that the company is focused on growth. Exactly as envisioned while evaluating the scheme as a potential transaction, the integration has enabled the company to strengthen market leadership and augment its diverse distribution channels. The consolidation has made the company the largest motor insurer and the second-largest general insurer in India.
• The successful integration of the demerged business of Bharti Axa General Insurance with the company has led to optimisation of organisation structure, rationalisation of offices, efficiencies in claim settlement practices and technology applications. This is expected to result in annualised synergy benefits of Rs 2 billion of which Rs 0.70 billion has been realised in FY 2022.
• The company was the first large insurer to move its entire ‘core systems’ on to the cloud this year. Moving our complete set-up on to cloud has given us some immediate benefits, including stability, availability and scalability.

Could you elaborate about the benefits of moving the entire ‘core systems’ on to the cloud? 

We are proud to say that we are one of the first amongst the large insurance companies to move entirely to the cloud. Over the last 12-18 months our migration journey to the cloud has been an enriching one and was full of new insights. At the same time, this also made us change our operating model. We have had to change some functions such as delivery, engineering and operations. Meanwhile, we have also had to re-skill and up-skill our existing workforce in new technologies related to data, engineering, artificial intelligence (AI) and machine learning (ML), and also understand new ways of working like Agile and Dev Ops.

These changes were not only for the IT team but more of an organisation-wide change where even the business teams had to learn to work with the IT teams in a more agile manner, requiring smaller delivery sets and shorter sprints. In our data centre we had about 110 applications across 600 servers and around 1,000 terabyte of data. As said earlier, moving our complete set-up on to cloud has given us some immediate benefits, including stability, availability and scalability.

What steps are you taking to accelerate the expansion of your distribution network to increase penetration in Tier III and IV cities as well as digital technology and claim services?

We are seeing tremendous digital transformation in the banking, financial services and insurance (BFSI) sector. New-age financial technology and insurance technology organisations are ushering in high-quality innovation at a significantly fast pace. We are seeing organisations in the financial service industry adopting these new technologies rapidly and a lot of it is driven by changes in consumer behaviour and the availability of extensive data. Newer technologies on the digital front, including artificial intelligence and machine learning are and will continue to play a major role in providing innovative solutions from a customer experience standpoint.

As consumer expectations and behaviours change, we believe that the insurance industry will continue its transformation by embracing newer technology, be it through chat bots that act as virtual insurance advisors or an AI detection model that acts as a digital claims adjuster or a ML model that acts a smart underwriter. There will be prolific use of AI, ML and cognitive services that will help address needs such as digital adoption, customer experience management, operational efficiency, underwriting profitability, claims optimisation, and much more. Specifically, on the claims side, Internet of Things (IoT), drones, telematics and wearables will play a higher role in prevention of incidents as compared to traditional claims management.

Automated customer service handled through voice and text will continue to aid customers during the claims process and sophisticated natural language processing and natural language understanding algorithms with help identify fraudulent customers. We have already been at the forefront of developing some of these solutions, be it our break-in AI solution that helps customers to renew their policy automatically by clicking and uploading pictures of their vehicles or our health cashless AI solution that helps in adjudication and authorisation of health cashless claims for our group health customers.

All these transformations also include the ability for a cognitive service and natural language processing-driven chat bot to resolve customer queries through chat or voice. At the same time, virtual inspections using drones and IoT-driven monitoring of cargo are helping our commercial lines’ customers in risk understanding as well as risk mitigation. Our ‘ILTakeCare’ app is helping our retail and corporate customers to use features such as telephonic consultation and homecare. Similarly, our newly launched AI-based features on the app such as Face Scan and Cal Scan are helping customers in understanding their vitals and calorie intake to take better care of their heart.

At the moment, what are your top three strategic priorities?

The three priorities that will enable us to sustain the return on equity objective over the long term include:

• Strengthening the distribution engine.
• Focus on growing within the preferred segments while maintaining quality of underwriting.
• Rationalising cost while scaling up, continually service customers with excellence and leverage on digital advancements.

What is your earning outlook for the upcoming quarters?

In FY 2023, the company will continue to pursue its growth momentum by maintaining the right balance between top-line growth and ROE. While there may be a short-term weakening of new automobile sales, the company will focus on increasing the CV mix. The continued investments in health and digital will be accompanied with a larger focus on sales distribution to assist higher than industry growth. The company has also initiated various process improvement initiatives aimed at enhancing operational effectiveness by reducing overall lead times and improving quality control. Further, the successful integration of the demerged business of Bharti Axa General Insurance with the company has led to optimisation of the organisational structure, rationalisation of offices, efficiencies in claim settlement practices and technology applications resulting in expected annualised synergy benefits of Rs 1.30 billion to be realised in FY 2023, of which Rs 0.70 billion has been realised in FY 2022.