FICCI's 10th Conference on Insurance
November 23-24, 2005, New Delhi

Address by Mr. A. K. Shukla, Chairman, LIC of India and Chairman, FICCI Insurance & Pensions Committee

It is indeed a privilege and honour for me to deliver the Special Address before this distinguished gathering. At the outset let me pay my compliments to FICCI for its unstinting support to the cause of the insurance industry. In fact, FICCI itself is a great brand and when such a brand promotes a sector, the outcomes are bound to be positive. Today's occasion is specially momentous because this conference is the tenth of its kind and ushers in a decade. In today's globalised business environment which is governed by rapid change, the tenth conference should be an occasion for interpretation of the past as well as contemplation for the future. To that extent, the topics chosen for the conference have great relevance to the insurance sector, and in fact form the core issues that will determine the growth path of the industry.

If we have a glimpse of the global life insurance scenario, we find that while the growth has either plateaued or turned negative in the developed countries, it has shown a great potential in the emerging markets. India in particular has revealed a buoyant market which has grown at a CAGR of 23% since the opening up of the sector

Global competitiveness presupposes first successfully competing in the local markets and thereafter expanding into the global markets. The prerequisites of global competitiveness are, developing world class products that meet the aspirations of the global customer, delivering service to match his rising expectations and managing costs to remain competitive and sustain growth. This will require technology and developing world-class competencies in the workforce.

Insurance contracts are basically long term contracts and succeeding in the long term requires a rigorous asset/liability management in an uncertain business environment where interest rates are demonstrating tremendous volatility. This demands vast expertise in risk management and it becomes imperative for an insurance company to groom and develop a skillful cadre of risk managers. The looming threat of terrorism which has itself become global, deadly diseases like AIDS and potential ones which could emerge from the mutation of Avian flu virus demand a paradigm shift in risk management and a consequent departure from conventional mortality investigations. Further, natural disasters like the recent earthquake in J&K and earlier tsunami, and hurricanes like Katarina and Rita pose unending challenges to our actuarial skills.

In the light of these sensitivities regulation will have to play a significant role and regulatory issues like the solvency margin will continue to be critical to the growth of the industry. This will be a continuing challenge for the new players who are on a growth path and will be one of the important long term considerations.

Market share is a double-edged issue, while a falling market share becomes a survival concern in a stagnant market, it is not a major concern in a growing market provided a company manages a sustainable rate of growth. And, let me add, that the potential for insurance is Vast in India. Today, the total insurance penetration i.e premiums as a percent of GDP is about 2.88 in India against a world average of 8.06. This shows the potential for growth of the insurance industry and provides a great opportunity to all the players in this sector.

In the changing paradigms of business management in the twenty first century, corporate social responsibility emerging as a major issue and as this subject is debated globally, it is likely to emerge a guiding principle for corporates in the future. There is a pressing social need to provide insurance to the poor. IRDA has already imposed rural and social obligations on all insurance companies and rightly so. However, there are huge weaker sections who cannot avail of conventional insurance and their need for security becomes our corporate responsibility. I may add in all humility that LIC through its managed social security schemes has provided cover to about 1 core such families. Yet, this is only 20% of the total of 5 crore plus such families. Thus insurers have to come up with schemes that are socially meaningful and an alternative to state provided social security schemes. The issues here are many. The insurance companies have to work in close liaison with the central and state governments so that target groups are identified and they agree to fund a portion of the premia. Here implementation is the key and all insurance companies should come together to create a greater awareness and see it as a means of fulfilling their corporate social responsibility.

IRDA is already seized of this issue and is already working on regulation for micro-insurance. The success of micro insurance programmes will depend on creatively designing demand driven products along with client-friendly collection and delivery mechanisms. However, the ultimate success of such programmes will depend on the commitment and passion with which they are implemented.

It is high time we recognized the rights of the customer and changed out attitude. Customers will be guided by two important considerations: price and quality of the service. While a high level of service is required, for the buyers price is extremely important. Customers are keen to understand what they are buying, why they are buying and what they are getting for their money. This growth in customer sophistication poses problems for insurers. The profit margin, if any will be squeezed, as we shall have to provide services which customers would demand in short all have to be more efficient.

Information technology is transforming industry more than anything else. It will do so at an accelerating pace. We can now have access to plenty of information, data and statistics. But it does not help us unless we know how to analyse it. It is the analytical power that can lead us to the creation of new products. Our customers can take the initiative and communicate with various players and with each other. Insurance business is completely driven by knowledge and technology. The business of selling insurance products requires assessing the profile of the customer and designing the right product. The process is facilitated by database and data warehousing. Product innovation is an ongoing process for us insurers but ultimately it is the customer that has to be focused upon. Customer centricity has to be the watchword for all of us.

Detariffication is an issue that concerns the non-life insurance industry which is still much regulated. While it will be in keeping with the spirit of reforms in the insurance sector by tuning the premia with the actual market price, detariffication may not be popular. Detariffication, for example, in the area of motor insurance may lead to a hiking of premium rates, an issue the industry will have to grapple with.

Before I conclude I would like to place emphasis on an issue which is going to become very critical for corporates in the future. This is the issue of ethics in business.

Today's globalized business environment is marked by high-intensity competition leading to merciless markets. In the face of such competitive pressures there is always a temptation to take shortcuts to success. A seductive urge to abandon ethics in the practice of management for shortsighted gains. Yet there are also enough cases, Enron and WorldCom to quote a few that have demonstrated beyond doubt the dangers of straying from ethical business practices.

In fact to quote marketing Guru Philip Kotler, Business success and continually satisfying customers and stakeholders are intimately tied to adoption and implementation of high standards of business and marketing conduct. The most admired companies in the world abide by a code of serving people's interest, not only their own.

Thus the company's bottom line cannot be the sole criteria of corporate performance. Ethical issues have to be dealt with in major aspects of its business. This imposes a heavy responsibility on the CEO to not only be an ethical role-model but also appear to be seen as one. He has to create the right perceptions in the people's minds through highly visible acts and deeds that high standards of business propriety are not only paramount, but the foundation of corporate decision making process. Examples of integrity at the top get a powerful of gravity and begin to flow down the line becoming all pervasive in the organisation. Hence, the CEO becomes the fountain-head of a cultural change leading to the transformation of a business entity into a mighty ethical organization

Let me once again state that there has been a judicious selection of issues and the deliberations should see a number of ideas getting generated by the distinguished panel of speakers. I have only endeavoured to touch upon some of the issues proposed to be discussed today and tomorrow.

Thank You