Biggest problem for insurance industry is fraud: GIC Re chief

Indian Express

15-06-2025

RAMASWAMY NARAYANAN, Chairman and MD of state-owned General Insurance Corporation of India (GIC Re), says the biggest problem for the insurance industry is fraud — whether it is health or motor or agriculture. In an interview to HITESH VYAS, GEORGE MATHEW and SANDEEP SINGH, Narayanan said the unregulated healthcare sector needs a regulator and GIC Re is discussing with the government on introducing a catastrophe insurance for the country. Excerpts:
How do you see economic activities at the ground level? Are you seeing demand coming in from industries?
Yes, it has happened. We are looking at good avenues of growth, definitely at the corporate level. At the retail level, it goes up and down, depending on how people look at insurance.
We also have a big role to play in trying to educate people to look at insurance in a more positive way. When COVID happened, health insurance went up. Motor insurance is an area where we have found that some of the compulsory insurances are not taken by people. Overall, I look at the market growing very well. There are different areas or different pushes coming in, such as the regulator bringing out the slogan saying 'Insurance for All by 2047', which is pushing people to perform. As an industry, there is a huge amount of work that we need to do. The growth or the competition is here in the metro and tier 2 cities but we have not done enough in tier 3 cities or villages. We need to do that.
Any particular sector where you see more activity happening which may be leading this phase of uptick in growth?
Infrastructure is an area where we are seeing a lot of growth and demand. So, obviously, that augurs well and this also means that the country is growing in the right direction. That is something which looks positive and we are seeing growth there.
Why is the level of insurance penetration not increasing?
We are not creating new markets. We are still fighting in the same markets today. Companies are present in metros and tier 1 cities but if you go to very smaller towns or villages, they are not there…maybe the cost of having an establishment, or the premium figures may not be as big as you get in a branch here (metros or tier 1 cities). That is really pushing back people from doing it probably.
Unless the insurance industry starts distributing it (products) to the last man in the country, I don't think penetration levels will go up. Penetration levels have to go up. We are abysmally low.
Do you see scope for a war insurance cover?
We had spoken to insurance companies and brokers that if somebody wants additional cover, we are willing to look at it. Basically, the normal traditional cover, especially in property and other products, do not cover war or war-like situations. It is completely excluded.
I was waiting to see if somebody, especially close to the border, would be interested in a war cover. But I realised that the time frame was small, and also people would have realised that looking for a cover then would mean that it is very expensive. The event happening and you ask for a cover, people obviously charge a very high price. Going forward, maybe people will start thinking about this cover. So, we look at it positively. This is another area of insurance that can come up. So, we are ready for that, in case people want that.
Why have health insurance premiums shot up in the last two years?
The issue is higher claims. And yes, we are also worried about it and are pushing hard. It is an unregulated industry. Hospitals, unfortunately, don't have a regulator. When you go to a hospital, the first question they ask is whether you have a policy. The moment you say yes, the treatment that you get will be the same but the cost will go up by a factor of something. This, according to me, is not legitimate. Whether I am insured or I am paying from my pocket, the cost of the service cannot go up. It has to remain the same. This is something that needs to change.
The insurance industry is trying to control the cost. They are trying to control and see whether one is being subjected to tests that they don't need for the problem that they have gone for (in a hospital). There is a lot of resistance from the hospitals. There are complaints that people have to pay money upfront for treatment at the hospital. If everyone is regulated, why not healthcare also? The general insurance and life insurance councils have approached the government. They are seriously in talks with them and something should happen, I am sure.
Why is there no catastrophe insurance scheme for the entire country?
Hopefully, it will come sooner. We are discussing this with the government. We are obviously in the business of taking catastrophe risks. We understand how it is changing, in terms of frequency and severity going up. When a catastrophe happens in India, about 8-12 per cent is the insured loss, depending on where it hits. The rest is completely uninsured, which is the problem area for us. Most of the time, these are people who cannot afford and take the brunt of the shock. Once the event has happened, they depend on the government for doles. So, we have been in talks with the government saying, rather than doing that (offering doles), take a cover, pay for it yourself because other people just can't afford it. So whatever budget you have, you use it to pay the premium. And then once the event happens, let the insurance and reinsurance take over.
This will work well according to me because once the insurance industry gets in, they will also start looking at ways to reduce losses.
We are also looking at doing it in a slightly different way other than the traditional method. We are proposing what is known as parametric insurance, which is not traditional. It is based on certain triggers being met. So if I say that in a day 200 mm of rain happens, then you get the claim. I don't even send somebody to see whether you have suffered a loss. You are in that policy, you get it (claim amount). This will help the government also as they know that immediately there is a relief going to the people who have suffered.
The Insurance Amendment Bill is awaited. The government has allowed 100 per cent FDI. What will be the impact on general insurance and on the reinsurers?
For reinsurance, it makes no difference because any way you can have a 100 per cent branch. All foreign re-insurance branches (FRBs), such as Munich Re and Swiss Re are 100 per cent owned, they don't have any local partnership. On the insurance side, I am a little doubtful. First of all, when it moved from 49 per cent to 74 per cent, we didn't see a major take-up by foreign players, saying we would come to 74 per cent. My personal feeling is that you need to have a local partner in a market like India. You need to have a great distribution network. I think a strong local partner will always help.
The local partners are the ones who are driving it. The foreign partner can bring in global best practices, best products, right pricing strategies and insurance knowledge.
How are you dealing with scams in the agriculture sector?
The insurance company on ground has to be very strong. For us, as a reinsurer, we try to see how strong they are, how they are able to manage the scheme, do they understand what they are doing, and the pricing. Unfortunately, today in agriculture, pricing has been horrible because new schemes have come up. Currently, the most popular scheme is the 80-110 scheme, where your risk coverage or your risk transfer is only 30 per cent. You give a cover and in case your losses are below 80 per cent, the balance you repay back to the government. If the losses go beyond 110, the government steps in and pays the losses. So really the risk transfer is only 30 per cent. As far as we are concerned, I don't think that's the way insurance should work. Secondly, fortunately for us, when it is the 80-110 scheme, most companies don't come for reinsurance support at all because they know their losses are capped, they don't need reinsurance. As a result of all these, the pricing is horrible, and at that pricing we will never write, that's very clear.
Why talk only about agriculture? For the insurance industry, the biggest problem is fraud – whether it is health or motor or agriculture. The General Insurance Council is now pushing hard. They are trying to get the companies together. The IRDAI came out with this concept of Bima Sugam – a platform where everybody shares the data on insurance. So you know whether there is any fraud.
I think initiatives are coming out but the market is still at a stage where a lot of things need to be done.
Why did the growth in the insurance sector decline in FY25?
Typically, the industry has gone 12-13 per cent year on year. This year (FY25) it was 6.2 per cent. Two reasons – one, I would say is the fact that there was a change in the accounting. So, earlier long-term products, such as housing and motor, were accounted for the year they were taken. Now the Insurance Regulatory and Development Authority of India (IRDAI) has said it must be accounted for the number of years that it has to go through.
For example, matching with your 15-year housing loan, if you take a 15-year home insurance product, then it needs to be accounted for over 15 years. So obviously, this being the first year, there was an immediate impact. Second, I would say that the premium in the property class of business fell last year, which we are hoping to correct this year.
How do you see prices this year?
This year, prices should hold up. So as reinsurers, we have also put in place different ways by which to control the prices from falling too much. We need to understand the market well. Sometimes people tend to take decisions without going through the entire gamut. Property is about 8 per cent of the total portfolio. So, for a company which is writing probably 35 per cent of its business in health and another 30 per cent in motor, compromising a little on that 8 per cent may not seem too big, but overall, the big losses that we expect here, we need to ensure that it is priced.
India is that way a cat-prone country. Every year we have some kind of event happening. Climate change is a reality today. The kind of losses that we used to see previously, the frequency has gone up, severity has gone up tremendously. With all that, we need to ensure that the prices match up to those losses or at least to those risks we are taking… at least you have to provide. When the loss happens, you should have some buffer to pay out.
Do you think a concept like sharing credit score should be implemented in the insurance industry?
There have been some discussions at the General Insurance Council level that claims and the so-called frauds need to be reflected in a person's CIBIL (credit) score also. So it is not just about you missing out on an EMI payment, it is also about the fact that if you have done something fraudulently, it should hit you on your CIBIL (credit) score.
Your investment income grew by 4.5 per cent in FY25. What was the reason for the slower growth?
Typically, about 73 per cent of my book is debt, which is normally government securities or AAA-rated bonds. Close to 17 per cent is equity on a book value. Nearly 8 per cent is money market, which is FDs or liquid mutual funds, and about one per cent is alternative funds. This year (FY25), markets were pretty volatile and at some points, they fell drastically.
We used those opportunities to buy. In FY25, the profit on sale of investments was comparatively lower. This is the reason you see the growth is only about 4 per cent.
Your premium from the international business has come down in FY25. What do you attribute this to?
The growth (in international business) has started. You need to have a very good credit rating to underwrite international business. Going forward, we will be growing our international book along with our domestic book. The growth will happen typically 10 per cent year on year. Currently, our domestic book is 75 per cent and 25 is international. We would like it to be 50-50 at some point. But in the short to medium term, it will remain where it is because internationally, economies are not doing well. We don't see growth.
How about investment in new projects? Is it taking off?
It is definitely taking off. Investments from private promoters and from the government in areas such as highways, bridges and metros, are definitely happening. People are happily focusing on the Environment, Social and Governance (ESG) side, and so a lot of investments are happening on wind and solar farms, which is very encouraging.