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Telematics is unlikely to impact car insurance pricing in India

LiveMint logoLiveMint 02-10-2017 Shaikh Zoaib Saleem

The Insurance Regulatory and Development Authority of India (Irdai) recently granted final approvals to three general insurance companies, taking the total number of general insurers in the country to 33. Mint Money spoke to Kamesh Goyal, chairman, Go Digit General Insurance Ltd, on his vision for the company as well as the overall general insurance space in India. Edited excerpts:

You have got final approval from the regulator. What’s next?

Yes, everything is now good to go. For us the process starts with filing of the products with Irdai. Only after its approval will we be able to start selling those products. Everything else is complete.

What are the products that you are planning to start with?

Essentially, we are looking to start with private vehicles, which is, cars and two-wheelers. We are also looking at a product for asset care, for movable assets that people typically carry with them—like electronic items or jewellery—and one product in the travel space. We plan to start sometime in October.

There are only so many products that we can file at one go. We would definitely have a health product in the second phase, which would be 3 months from the launch.

What is the market like for products like movable assets insurance?

The market is very small. One cannot look at these products from a volume or profit perspective, but the idea could be to see if we can make people buy small insurance products that are not compulsory in nature. Only then you move in a direction where people buy insurance on a voluntary basis.

There are 33 companies in the general insurance space now. How will your company be different from others?

In terms of differentiation, one is obviously the way a product is constructed. Our philosophy on that would be to make it as customizable as possible for each customer rather than have a standardized product. Another big differentiating factor would be on the processes side. In a way, we are transmitting information or communicating with a customer. Interactions between business partners and us on policy issuance, quotes, documentation, and others will be more on a real-time basis and digital, than be paper-focused.

For distribution, will your focus be more on digital as well, apart from processes?

As of now, direct sales through digital is not a focus area for us. When I say digital, I mean that the interactions with our partners and distributors will be in a digital and paperless way. This is very different from a direct channel. When it comes to partners, on the retail side, we will be looking at retail partners and large agents and motor dealers. These will be the first set of tie-ups that we will have. We would evolve as we go along. 

Many insurance companies are going public. A common argument is that this would improve transparency. What is your view on insurance companies getting listed in India? Will it benefit consumers?

It is a difficult question to answer. Has the listing of banks or non-banking financial companies (NBFCs) helped banking customers? My sense is that there is no impact on a customer due to listing or not-listing of a company. Because, especially in financial services, as a customer when you are buying a product you will not worry whether a company is listed or not. Over a period of time, the listing helps in being discussed and analysed; and that helps in improving the brand name. For instance, Uber which is the biggest non-listed company today, I don’t know what will change for a customer if it gets listed tomorrow. 

As far as transparency is concerned, I think insurance companies for a long time have been required to publish a lot of data related to products, performance, financials and customer service. I am not sure what further transparency listing requirements bring; from a customer’s perspective. The corporate governance norms in insurance companies are already very tight. 

With such competition in the general insurance space, do you see a phase of aggressive pricing?

Pricing competition is already quite severe. I hope that with many insurance companies listing—or planning to list—they will become returns oriented. And companies becoming returns oriented, I think, will itself bring some discipline in pricing. 

What innovations can we expect in your products?

After a couple of months would be good time for us to demonstrate on the ground the new things that we do. My philosophy on this is to talk about what we do, and not what we plan to do.

The regulator is discussing telematics in motor insurance. What are your views on this, given that motor insurance is the biggest chunk of general insurance business?

Telematics has not picked up in a big way in any single country that I know of. Second, telematics in India is unlikely to have a major impact on pricing, because of one simple reason: third-party premiums are already fixed by the regulator. Own-damage premiums are going down because of no-claim bonus or as cars get older and their value goes down, the third party premium are standard.

Typically, telematics is making an impact in other countries essentially in third-party. In India you might have a car and say that I will drive the car only on my birthday. You still need third-party insurance, and no amount of telematics can bring it down. 

Second, high-end cars in India are driven by drivers. Also, we have a culture that a car is driven by more than one person. So it will be difficult for telematics system to recognize any one driving behaviour. Also, in telematics where you drive is more important than how you drive.

Last, typically a telematics device is priced between Rs2,500 and Rs3,000. Who will fund this device. If insurance companies give it themselves and also give a discount in future, how will they fund it. And why would a customer buy a it for Rs3,000 for a possible reduction of premium of Rs3,000 over 3 years? This is again one of the things that people are talking about.

I do not know of any country in the world where more than 5% of the cars have telematics. Telematics has been around for more than 10 years now. I am not being biased, I am just sharing my understanding. If you ask any insurance company that offers telematics, they will be reluctant to tell you how many cars have that system, because the number will be very low. 

From your experience, what are the global best practices that still need to be brought to India?

From a customer’s perspective, when we talk of car insurance: is a customer really getting a choice today in terms of coverage and premium? You will realize that price and coverage is standard. They will offer you from three companies but in reality all processes from all three companies will be the same. 

In general insurance, about 50% of customers are quite profitable, this is true for all financial services. About 15-20% customers are heavily loss making and just around 30% customers are rightly priced. I think the challenge is to ensure that one set of customers is not subsidizing another set of customers on a continuous basis. That is not happening to the extent that it should. The premium difference of a similar car between two customers could be two to three times in most countries, while in India the difference will not be that much. 

So should there be differential pricing for car insurance?

The pricing we would want to be as segmented as possible. But that also depends on the amount of information that you have on the customer. The way the government is going about linking all the RTOs over a period of time and driving license getting linked with Aadhaar, so each violation will get linked with all of this. So the driving license will become a very good input for pricing. It is not possible today as this information is not available today. 

To what extent do Irdai norms accommodate products that can be customised?

It would not be proper for me to start talking about products now, as we have to wait for regulatory approval. In general, what I can say is that we have an experienced team and we would not be filing anything that is not allowed by the regulations.

Whatever we are filing, our understanding is that it is permitted by the regulator. 

What is the time frame that you are targeting to start making profits?

I honestly have no idea about it. I have been in the business long enough and I have realized that many plans do not materialize. Indian market is a very dynamic market. For example, crop insurance emerged as a huge segment in the past 2-3 years, which wasn’t there earlier. It is very difficult to predict. What I can say is that our starting capital base is Rs350 crore. As far as I know, no insurance company started with such a capital on day one. So the shareholders are committed to building a sustainable business. We will have a much better idea may be after 12 months after we start the business. 

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