‘Covid-19, crop insurance led to degrowth in ICICI Lombard topline’
Bhargav Dasgupta, MD & CEO, ICICI Lombard on why the insurer has nearly eliminated its exposure to crop insurance.
How would you quantify the Covid-19 impact on your GDPI (gross direct premium income)?
The impact that came in the latter half of March was because of the Covid-19 outbreak. But there is another factor as well for degrowth in terms of topline. For the full year, we had a negative 8.1% number in terms of topline growth. Crop insurance was about 17% of our business last year and this year we have not won any tenders. If you take out crop insurance from both last year and this year’s numbers, we had a growth of about 10.5%. Without crop insurance, the number for Q4 was about 2.9% for us.
You have nearly eliminated your exposure to crop insurance. Could you explain the rationale to us and elaborate how this was done?
We have been one of the leaders in the crop insurance segment for years and we had a very large exposure once the new crop insurance scheme was launched which in our opinion was a very well designed and well thought through scheme.
Unfortunately, in the last year or so, we saw that the reinsurance terms at the end of the day, creates huge volatility and huge exposure on our balance sheet. No insurance company alone can take that risk on its balance sheet. So, what we do is we buy reinsurance protection to protect our balance sheet and we share some of the premiums. The claims are also shared with the reinsurance. The reinsurance terms over the last three years have deteriorated sharply to a level where there is no hope of making any return on your equity. Secondly, the pricing environment on the ground remained very aggressive. These were the two main reasons why we took the call.
How do you see traction in health insurance in these times of Covid-19? Do you expect people to be more cautious about health insurance going ahead?
Typically for us, health remains roughly about 20% of our GDPI. There are three categories in health insurance. One is the employer-employee, which is corporates buying health insurance for employees.
The second is retail and within that there are two segments – one is the segment where we provide mediclaim policies; there are indemnity policies. If you fall ill and you are hospitalized, we will reimburse the claims.
And the third segment is retail benefit which is basically critical illness covers where we pay a lump sum amount for certain specified illnesses like heart attack or cancer or renal failure — large ticket expenses. If it happens, we pay the full lump sum. These are the three large categories that we focus on.
As I said, for us the mix for health is about 20% of our book. Coming back to the specific question on Covid-19, one of the things that we did when the Covid pandemic started breaking was we took a call that we wanted to launch a fixed benefit Covid policy for the lower strata in India who do not buy health insurance.
This is a very low cost policy. It ranges between Rs 150 and 200 and we pay a lump sum benefit of about Rs 25,000 if you test positive for Covid-19. Our standard indemnity policies which I talked about, where we cover hospitalization, anyway would pay for Covid-19 treatment and we are paying those claims as they are coming in. But this is for the category of people who may not have a normal indemnity policy.
Now this COVID specific policy was not something that we designed and where we expect to make money because in the kind of environment that we are in, we fully expect to lose some money in this product but it was a call that we took because at this point in time, it was important to launch a product that was relevant.
Typically, the terms and conditions of travel insurance policies do not eliminate pandemic risk, but given the current environment, we have taken a call of paying those claims to our customers who got stuck across the world because it was an unprecedented environment. Also, we have a lot of cancellations.
Normally, the cancellation charges which we have not charged our customers is with regard to travel. With regard to health, since the pandemic has accelerated more in April in India, we did not see too many claims in March but now the claims are coming in for us and for the industry.
Did you witness claims due to disruption caused by the travel industries?
In terms of the process, all of us had initiated this but subsequently the regulator has also asked the industry to ensure that all Covid-related claims are given priority and everything should be done within two hours that is something that we are doing. We have got a separate task force of doctors who are looking at this in a dedicated manner. The challenge that we are facing in the Covid-19 claims is the fluctuation in the total costs that we are seeing from different hospitals — from less than a lakh to up to Rs 6-7 lakhs in certain cases which creates some amount of concern for our customers and for ourselves.
Like the lab charges have been standardised, even the per day treatment depending upon the level of severity should be standardised as that would make things smoother and easier for our customers. But that being said, I think the process is working reasonably smoothly.
You said that there has been an increase in claims in April. Have you been able to honour all of them? Do you see any challenges in processing these claims?
What we have seen on the motor insurance side is one, coming to third party insurance, the price increase that was proposed by the regulator has been kept in abeyance. Now we do not know when we will get the increase. In third party claims, we normally see a claim inflation because these are court judgments and if this increase does not come through, that would have an impact on the loss ratio for motor books.
Just for us, the weighted average increase in the third party premium would have been about 6-7%. It depends on the mix of business and that is number one. If the price increase does not come across, it will have an impact on loss ratio as also on gross written premium (GWP) which could potentially go up to Rs 3,000 crore of forgone premium in the industry level.