Tata AIG's Neelesh Garg On Surety Bonds

NDTV Profit

Tata AIG's Neelesh Garg expects the surety bonds to take off with large reinsurance support. He also shares the preconditions that need to be in place.

Transcript

00:00 Hello, we're on the sidelines of the National Insurance event and we have with us Mr. Nilesh Garg,

00:04 the MD and CEO of Tata AIG General Insurance.

00:08 Thank you so much sir for taking our time to speak to us and I have a couple of questions

00:14 based on your speech and a couple of others.

00:16 So I'm going to begin with the shorty insurance which seems to be the talk of the town that a lot of

00:22 the government, the chairman recently at a speech spoke about how he

00:27 intends to give the infrastructure a push and the only way India will propel is via

00:31 infrastructure push and that comes from surety bonds.

00:34 From what I understand right now, we only have a couple of companies that deal with that.

00:40 So what are your thoughts on it and when do you see this actually picking up?

00:44 So surety bonds, I mean, we all know that infrastructure is a very very large opportunity in India.

00:51 So surety bonds also will become very large. So one I think

00:55 surety bonds will really take off with the large reinsurance support. So

01:00 it is a very specialized product,

01:03 globally available, but it needs a lot of deep technical expertise and it needs a very large capital base.

01:09 So large reinsurance support is I think a very important prerequisite. And second is, I think in the Indian ecosystem,

01:16 what is the security behind the surety bonds in terms of the IBC code, the parity with the financial lenders?

01:23 I think those are some of the preconditions, which will need to be done before surety bonds takes off. But I think

01:28 regulator has been very very supportive, including the ministry. I think we are working our way and

01:34 I see probably next financial year is when surety bonds will take off.

01:38 So are you tying up with any particular banks for this? Is there talk about them associating together?

01:46 Because with the kind of deep dive that you need into the financials of the person that you're guaranteeing,

01:52 how do you see this panning out? Is it practical and

01:56 are you all looking at it?

01:58 So Tata AIG is a very strong player in commercial lines. So we are

02:03 looking at surety bonds and we are in very advanced stages of

02:08 discussions with a lot of the top global reinsurers to switch it up because

02:14 when we enter a product, we want it to be for the long term.

02:19 And we need to provide the capacities, which will make a real difference for the infrastructure.

02:24 So we are working on that and once it's finalized, we will be launching a product.

02:29 By this year?

02:31 Hopefully before this year end.

02:33 So now a little bit on the parametric insurance that you spoke of.

02:38 There's a lot of hesitance from reinsurers is what I understand in terms of

02:42 reinsuring this sort of business. Are you seeing that? Is that why the rates are high?

02:48 Not a lot of people are opting for it because like you said the claim payouts are a problem in that sense,

02:54 you know, where you look at claims from the purview, the perspective of fraud.

02:59 So is that what is holding it back?

03:02 What is the barrier that's not letting parametric insurance pick off in India as much as it is globally?

03:08 Parametric insurance is a very powerful concept for everybody to understand. It's just that the awareness level of India

03:15 or the Indian customer is a little low. So it's

03:18 not like a normal insurance which moves from one insurer to the other.

03:23 But this is a new insurance which will need to be purchased. In every new insurance

03:27 there is a period of 12 to maybe even 24 months for the Indian customer to

03:32 understand the full need of it. So I think that's the thing which is happening.

03:38 I don't think there is any pricing issue. In fact, parametric insurance claims are the best because

03:43 since there is no survey,

03:46 it is defined on a trigger. So the insurance claims on a parametric product are the fastest and they are the most transparent.

03:53 So I think parametric insurances will become very large in a country like India.

03:58 And so in your speech, I remember you mentioned that we're growing at 14x and then eventually we need to grow at 20x

04:04 for India to reach the goal of insurance for all by 2047.

04:08 So what do you think the industry can do to boost this growth?

04:12 And I believe the chairman and all of you, the industry in totality is taking a lot of effort.

04:18 So where is that heading? Do you see that number going up very quickly? How is it going to be?

04:23 So I think the chairman, IIDA and the regulator has been driving it very hard and they've made a lot of changes including

04:30 ease of use and file for product innovation.

04:37 The overall

04:40 number of reports and MISs which the insurance company need to file. So there are a lot of things which every day,

04:46 raising of alternate capital has become

04:49 you don't need to go to the regulator. Similarly, I think RBC and IFRS again are going to become big game changers.

04:56 So I think all of these things are happening. I think all the enablers are in place. I think the only thing which we are

05:00 working very closely with the regulator is further opening up of the

05:06 distribution.

05:10 So once that happens, I think the insurance industry, I don't see any reason why we'll not be able to grow at 20% CAGR.

05:16 So something on the EOM,

05:20 that has been revised recently and there's a lot of back work that goes into

05:24 defining your expenses of management, right? If you have to set them at 30% and 35% for particular lines of business.

05:31 How is that panning out? Are we within limits as an industry and you individually?

05:38 I mean as a company and

05:40 do you see some competition in terms of commission? Say do you have a niche line of business that you're targeting?

05:46 And more commission towards that versus the others. Are you seeing some aggression in certain lines of business?

05:52 So not really, I mean, you know, so one I think to answer your question, Tata AIG is compliant with the EOM guidelines. Number two,

06:01 I would say most of the large

06:04 players also are compliant.

06:06 So certain mid to small size players, you know, are their expenses or newer players,

06:11 their expenses are higher. And I think all of them now as per the new guidelines,

06:15 they need to submit their plans to IRDA in terms of how to bring down their expenses.

06:20 So I don't see any increase in international competition post EOM, if that's your question.

06:27 But I think in overall this cap on

06:31 overall expenses of the company is a very good event, you know, which is happening and I think it will make the industry much stronger.

06:38 And is there any focus area where you're putting in maybe more funds

06:42 towards commission, sparing more funds for commission?

06:46 No, not really. I mean the only

06:49 the focus, you know, for Tata AIG as a company, we are putting a lot of investment into digital. So we want to be

06:55 the most digitally agile and digitally native company and that's where our large part of the focus is.

07:01 [MUSIC PLAYING]

Recommended

Category

Transcript

Recommended