It will take five years to wipe out losses in life insurance: Sam Ghosh, MD, Bharti Enterprises

Bharti AXA expects both its businesses — life and general insurance — to be among the top 5 in the coming years. In an interview with ET, Sam Ghosh, MD of the financial services arm of Bharti Enterprises, talks about the challenges while charting a profitable growth path. Edited excerpts:

You have moved up from 15th to 13th in terms of ranking. How soon do you think you can get to top 10? How do you scale up from there?
We ended the year at 13th and we look to get to the top 10 in a couple of years. This year, life business is likely to grow by over 50% and non-life at 45%. Ultimately, the aim is to boost the business with focus on profitability and how to be among the top players. In life insurance, we added 25,000 agents. This year we will ramp up even further. We added 50 branches and add another 100 this year. We had some third-party partners, but we want to add some more. We want to add banks. We think a bank is missing on the life insurance side.

On the general insurance side, we have added HDFC BankNSE -0.25 % last year. We have tieups with HSBC and StanChart Bank. We don’t have a bank partner and that is our downside. We have to build our agency and proprietary channel. To break into top 3, we have to invest in inorganic growth. We are looking at options whenever the matter comes up. If it is at reasonable price, both shareholders will look at it. It should be the right price.

What would you consider reasonable valuation?
Some of the deals in the market in the mid-tier range are commanding the same valuations as the listed ones. If you look at the trading multiples of listed companies, if a company is at number 7-8 in the pecking order, you have to give them some discount.

Have both the businesses turned profitable now?
The life insurance company has broken even after 13 years. Non-life company is showing profit. We brought our IT system back to India. It was in Hong Kong. From a profitability and growth perspective, it is going to happen. We have booked a profit of Rs 5 crore for life insurance and it is the first year of break-even. In general insurance, we have reported loss this year. We have brought down our loss in general insurance to Rs 93 crore from Rs 150 crore a year ago. I have put aside money for third party. Reserving for third party was low. We have fixed that. We have changed the product mix. We have increased the share of motor insurance to 60%. We have started health and the commercial line. It will take us 4-5 years to wipe out losses in life insurance. Our EV is growing. This year, we will break even in our general insurance business and start showing profit from next year.

You had cut down the number of branches when you took over. What is the strategy now?
We changed the mix. We added much more front line. Earlier, the cost structure in life was 20% in head office and operations. Now 90% is on front line and only 10% is head office and operations. We have realigned. We moved more people to sales. In non-life, we moved the company from Bengaluru to Mumbai. Lot of people left in the process. We added new partners and channels, So we needed people to service them.

There are almost a dozen new general insurance companies. How is competition panning out? What are the challenges ahead in this space?
If you grow distribution, there is no competition. Some of the mid-sized players have stagnated. In general insurance, the commercial lines business has shrunk. The good thing is that retail is growing; so you have health and motor continuing to grow at a significant rate. The challenge of pricing and claims handling will remain. Life insurance is more face to face. This year our focus is to digitize back office. We are looking to work with Airtel customers as well. We are talking about how to make it completely digital.

Now, Bharti runs the show while Axa has taken the back seat. What has changed?
Axa wants to be in India. It has gone up to 49% from 26% in both general insurance and life insurance. It has given the Indian promoter a lot of freedom. AXA bought XL; so there will be a large chunk of corporate clients we could have access to. Last year, we closed a corporate book of Rs 150 crore and we plan to grow the book. We have added people for commercial lines.

Why is your attrition higher?
When your investment is growing, your attrition is higher. When you are stabilising, you control attrition. In Life insurance, agency contributed 55% of the business last year. There is a direct sales team of 800. We added 400 in the last one year. Our agency sales force has gone up from 10,000 to 25,000 this year. We plan to take it to 40,000 this year. We are planning to set up a TPA for government health scheme. We are looking to hire an agency for health. We do motor with motor dealers and through our separate agency force. We have separate SME agency clients. We also have a separate team for agri.

In case of inorganic growth, will you look at merger or acquisition?
It is based on opportunities. It depends. If it is a big bank, then they may want a shareholding; so it will be a merger. First choice is 100% buyout and the second will be merger to get bank assurance.

Premium for motor insurance fell after the new MISP guidelines capping commission came in. How is the motor insurance business affected?
Our business has slowed down due to MISP. Lot of people are flouting these guidelines. The concept is good. It helped bring down the pricing. In the last two months, payouts have gone up. Not everyone but few companies are being opportunistic. Largely discipline is coming in. To be fair, IRDAI is auditing the insurance companies to see there is no violation of the guidelines.

Has the focus of the industry moved from topline to profitability with private equity investors coming in?
These investors are looking at a minimum five-year horizon. They are looking at growth. They are not looking at short-term dividend. It is a game of market share. Market is growing fast; so the multiple is higher. In the industry, all big players are focusing on profitability.

Source- Economic Times

Date- 5th June 2018


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