We will achieve breakeven in underwriting soon: Liberty General Insurance's Roopam Asthana

Insurance industry went through challenges during the peak of Covid-19. From high health insurance claims to decline in motor insurance business challenges were many.  In an interview with Business Today,  Roopam Asthana, CEO and Whole Time Director at Liberty General Insurance Ltd talks about how the industry has changed post Covid and what will be growth drivers for the company going forward. 

BT: How have been the last two years for the company since the outbreak of Covid-19? 

Roopam Asthana: 2020 and 2021 were definitely challenging for us. The pandemic impacted our business as our distribution partners could not set up meetings or go out and meet clients. When you are in the insurance business, these things matter. While we continue to talk about the growing digitization of financial services, fin-tech, and other digital integrations, insurance as a product still needs some face to face interaction because of low awareness. Also, having an in-person meeting is crucial to building long-term trust, which is an integral propostion for any insurance provider.

However, I am particularly proud of how our teams operated during Covid times. We put people first and were extra cautious about our employees, partners and customers. We devised flexi working guidelines and ensured that those were followed strictly to ensure safety of our people. There were times when all our employees worked from home, and the company very quickly pivoted to this because of its strong IT infrastructure built for flexibility besides providing COVID related assistance to all employees and partners.

The pandemic has radically changed the way we work. It changed the phrase "digital transformation" from technical industry jargon to an everyday activity. We have aligned with the changing customer behaviour and have been focusing on that transformation as we reposition our operations to incorporate these critical changes.

BT: Motor insurance business suffered a set back during pandemic. Has it recovered? 

Roopam Asthana: The pandemic did impact major business segments negatively during the period, including the dominant ones - motor insurance. Initially, the auto manufacture and auto dealerships were shut, and then the semiconductor shortage hit the automotive industry, leading to lower vehicle production. Naturally, the motor insurance business took a hit.

On the other hand, we also witnessed some positives during these challenging times. There were large changes in partner and customer behaviour, with more transactions moving online. Consumers became more aware of health insurance and started exploring health insurance options aggressively. The increased risk of hospitalization and rising medical costs showed people the importance of having medical cover. That led to substantial growth in the health insurance segment.  

I have always maintained that India as a nation and Indians as a people are very resilient and we saw that in action as the country and its economy bounced back from the pandemic setback. In our insurance sector we saw very quick revival of motor insurance and but for supply constraints, the private car segment would have seen more robust growth. Two-wheeler segment has been a bit muted but the commercial vehicle segment has seen quick revival. I am confident of growth coming back in all segments of the motor insurance business very soon. Meanwhile, we continue to witness rapid growth across health insurance and commercial business segments.

BT: Why are health insurance premium rates rising? 

Roopam Asthana: There are a few factors behind the recent growth in insurance premium prices. One key reason is the higher inflation in healthcare costs compared to the average consumer prices. Generally, the former is around 15% to 16%, whereas the latter is around 7%. The increase in premiums is predominantly linked with medical inflation, which itself results from several factors, such as rising hospital costs and new medical technology and treatment advances.

These factors are ever-present in a growing economy like India, where healthcare is advancing significantly. The pandemic has also brought many changes in the treatment protocol, impacting the cost of claims. You can compare the hospitalization costs from three to four years ago versus the current prices, and you will observe a substantial increase.

Another critical factor you need to consider is the impact of Covid. It has put massive stress on the healthcare system. For example, suppose someone needs medical treatment. In that case, they must first undergo an RT PCR test, irrespective of the treatment they seek, incurring an additional expense. Also, the doctors, nurses, and the other medical staff still need those protective layers such as masks, gloves, PPE kits, etc., which has put additional costs on the ground.

Moreover, the insurance premium did not see any substantial hike over the last three years – including the two marred by the pandemic. Previously, there was a gradual increase in the prices each year. The increase was minimal and designed so that it did not affect the average consumer. All these factors cumulatively contribute to the growing premium costs. 

Another essential factor to consider is the advancements in life and health sciences. We are witnessing more advanced and better ways of treating any disease or illness. However, these new ways are generally costlier until the technology matures and becomes easily accessible. So, advancements in science and technology also add to the overall costs of healthcare. Hence, at some point, it becomes unsustainable for insurers to continue doing business without raising their price. These are, in general, just a few reasons why we tend to see an increase in prices.

BT: What will be key drivers for the growth of the company?  

Roopam Asthana: When you look at how we operate, our fundamental business principle can be summarized in three words – Sustainable Profitable Growth. We are not topline obsessed and are looking to grow the business sensibly over a long period of time while ensuring that we do provide our shareholders adequate returns. On an ongoing baisis we assimilate all the best practices and learnings from our domestic as well as international experiences to achieve this objective. 

We base our pricing decisions on data and analytics and walk away from business that does not provide economic value. At the same time, we ensure that the business we write is serviced well and that creates a pull for working with us and fuels further growth. Recently we launched Liberty 365 where we provide claim services for motor and travel insurance even on weekends and national holidays. We continue to focus on motor insurance even as we grow our health insurance and commercial insurance business. We are also focused on working with affinity partners like travel aggregators, e-commerce merchants, lenders and banks to offer their customers appropriate insurance products and increase our reach. We are present across over 120 locations in India – largely in non-metro where we believe the growth will come from. Our movement to digitized operations has ensured that we are less involved in transactional issues, and operations are becoming smoother.

Apart from motor insurance, another growth driver for the company is the affordable health insurance segment. Analysing India's demographic or income pyramid shows that government sponsored or promoted health insurance primarily target the bottom of the pyramid. So far, the insurance companies have really focused on the top of this pyramid. While that is important, the large segment in the middle continues to remain underpenetrated. According to the Missing Middle Report of the Niti Aayog, there are around 40 crore Indians without health insurance. Naturally, it presents an excellent opportunity to target this segment and make health insurance products available at the right price.

We see very large growth potential in the general insurance sector in India and it should be amongst the top general insurance markets across the globe very soon. We believe that this business will gain a lot from innovation and development of new reasonably priced products, new ways of reaching potential customers, relevant technology, and smart and efficient processes. Our growth strategy is focussed on shortening the learning curve based on our international experience and offering products that add value and effectively address local nuances. For example, we offer a 35 paisa insurance cover for train passengers in India.

We are a company with a long-term vision and focus on providing quality general insurance products and services to our customers. Our objective is not to drive up our valuation but to offer real value to our customers along with adequate returns to our shareholders. As I mentioned, we intend to develop a solid well-diversified portfolio of business that can provide sustainable economic value. And this approach has been the cornerstone of the 110-year-old legacy of our foreign promoters – Liberty Mutual Insurance Group.

BT: Where do you stand in terms of the economic value scenario? 

Roopam Asthana: Looking at the business over the last two years, you can see that we have been profitable across some segments. We are yet to achieve underwriting profits, but we believe the target is achievable and our performance is improving every year. We today have one of the industries best Incurred Claims Ratio – which is a sign of the quality of our book of business. I think it is an ideal situation for us to be in and to build upon. Profitability is also dependent on the scale of business. When you consider the amortization of expenses or fixed expenses, profitability improves as the business scales. Thus, currently, our focus is on developing that scalable business model without compromising on the quality of business. This is already playing out in the market and for the current financial year (April to August 22), we have seen a growth of over 30% year-on-year. This shows that we have started to build up that scale. And once we reach a certain level, I think the profitability will only improve.

BT: You said that breakeven in the underwriting is also on the horizon. How far is it? 

Roopam Asthana: It's a tricky question to answer as we haven't outlined that in exact terms. But with the pace with which we are going, we will achieve breakeven in the underwriting sooner rather than later. To understand the process, it is imperative to look at our business more closely.  

When you look at our business, there are two main drivers of profitability one is the claims costs, and the other is expenses. Today, on the claims cost front, we have one of the lowest claims cost ratios for any multiline insurance company – a company that underwrites different businesses – such low claims cost shows the good quality of our portfolio.

On the expense front, we have been laser-focused on managing our business more efficiently and upgrading with time. We continue to invest in technology and develop efficient processes both outward facing as well as inward facing. And we will continue to do so because you need robust technological and system-level support to increase efficiency and productivity and also to meet the expectation of today's customer. As our scale builds up, the operating expenses ratio will also improve.

Our aim is to hit a combined ratio (sum of claims ratio and expense ratio) of under 100% and we continue to drive in that direction.

BT: You mentioned that the company's claim ratio is the lowest in the industry. What are the reasons behind it? 

Roopam Asthana: To answer your question, I'll point out some of the fundamental driving factors of our competence – namely usage of data and data analytics. I firmly believe that the future of the general insurance industry – speaking in terms of doing more profitable business – lies in our ability to analyse both our own as well as industry data. We use the information on hand and the one generated in the market to develop analytical models that predict outcomes at different levels of pricing within different customer segments.

This will help us price our products better and sharpen our focus to achieve our business objective more accurately. We have invested substantially in integrating systems and processes that will give us a precise analysis of the collected data. We were among the first insurance companies to migrate to cloud applications for operations. We are now running a project to ensure that the data generated is well-secured and easily accessible within the organization for business improvement and analytics.

On the other hand, we are also investing in people who can develop data models for us. Our global partners have been very proactive in offering in-depth market knowledge to develop data models and actionable insights.

Usage of predictive modelling and data analytics combined with disciplined distribution on the ground has helped us achieve one of the best claims ratios in the industry today.

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