Cholamandalam MS General Insurance Company Ltd (Chola MS), a joint venture between Murugappa Group and Japan’s Mitsui Sumitomo Insurance Group, ended H1 of this fiscal with doubled profit after tax (PAT) and double-digit growth in gross written premium (GWP). It aims to surpass industry growth going forward. V Suryanarayanan, Managing Director, Chola MS, spoke to BusinessLine about the general insurance industry, the company’s re-entry into the crop insurance business, and the transition to a digital set-up. Edited excerpts from the interview:
Was the performance of the industry and Chola on expected lines in H1?
The gross written premium sequential growth, excluding crop (insurance), for the industry in Q2 was a little lower as compared with Q1. The H1 growth in the fire (insurance) segment has been marginal at just over 6%. The motor (insurance) growth in H1 was at 17%. The volumes from crop have had a positive as well as negative impact. The positive impact has been from universalisation, with states offering crop insurance coverage at Re 1, which has helped in penetration and coverage. The negative impact has arisen from states going for the shared results model, wherein the states step in when the claims ratio exceeds 110%. Insurers have pegged the premium pricing lower. This has resulted in a reduction in the overall size of the premium. For Chola MS, GWP of Rs 3,670 crore in H1 represents 32.8% growth over the corresponding half year. While about 10% growth came from the re-entry into the crop line of business, the balance of 22% was the organic growth across various lines of business.
How was your re-entry into the crop insurance segment?
Chola MS secured a cluster comprising four districts in Maharashtra. Rainfall deficiency in August impacted many states including Maharashtra, which is casting pressure on the ultimate crop yields. But thankfully, with improved rains in September, there is a revival in some crops. The shared results model, where claims ratios are capped at 110%, will protect insurers. As much as Maharashtra operates on the shared results model, Chola MS also has the protection. Besides, Chola MS has appropriate reinsurance protection.
Does the re-entry make business sense?
Yes, it makes business sense as it helps in the diversification of the business portfolio. By the end of the year, Chola MS will have about 6% of its topline from crop insurance. Besides, the crop insurance business being a government tender business, there is no intermediary and, therefore, helps Chola MS in providing balance in its expenses management. Also, with the shared results model, the risk of runaway claims in an adverse climatic situation is also capped.
Which are some of the fast-growing businesses for Chola MS?
For us, growth has been fairly even across lines of business. In motor, at the H1 stage, we had a growth of 23% as against industry growth of about 17%. In the fire line of business, we are growing at about 12% as against the industry growth of about 7%. Likewise, in the personal accident (insurance) business, we are growing ahead of industry. In retail health (insurance), we have grown by over 24%. There is balanced growth and we are not overly polarised by any single line of business
Chola MS is investing to shift to a digitally-enabled set-up. What are the key objectives?
It is still a work in progress. It’s a project which is going to take anywhere from 18 to 20 months. One of the key parts is to transform from a legacy ERP to a cloud-based architecture, as our legacy system didn’t support much of the newer technologies. We are also building our own app for use by channel partners (we already have a customer app). As a result of the shift to contemporary technology, we are looking at a better channel and customer experience. Introduction of do-it-yourself models, where customers can go for more self-help rather than approaching us or our agents. Also, it will give us the ability to work on more upsell and cross-sell methodologies with better information about the customers.
How are you strengthening your distribution setup?
This business is entirely about distribution diversity. We have a balanced distribution in bancassurance, financial partners, vehicle OEMs, and agents/brokers. We just launched our new agency club programme. In bancassurance, we have relationships with four of the six large public sector banks, large private sector banks, SFBs (small finance banks), and RRBs (regional rural banks). We will continue to expand this. Among financial partners, we work with NBFCs (non-banking financial companies), HFCs (housing finance companies), microfinance, and fintech companies. We work with almost all vehicle OEMs. Our agent/ point-of-sale persons (POSP) base is about 50,000.
What is the current business mix between metros and non-metros?
We are largely a non-urban company. Our metro share is actually low — maybe only one-third. I would say at least 40% will be in Tier 3 and 4. To give you one indicator, 28% of our topline comes from rural markets (as defined by the Census and other guidelines), driven by the motor business. We also have a farmer’s package which covers all the farmer’s assets such as tools of the trade, tractors, gensets, pump sets, and some level of crops that are stored in the house. This farmer’s product is sold through our public sector banks across the country. Cities are more competitive from a pricing front.
You have just completed two decades. What are your goals for the Silver Jubilee year?
From a volume perspective, we should be at least at Rs 12,500-13,500 crore by our 25th year of operations, which would probably be double the topline we ended up with in our 20th year (FY23). We are confident of working toward this goal. For the current fiscal, we aim to reach close to Rs 7,700 crore of GWP (Rs 6,156 crore in FY23).