final report v0.2

8/9/2019 Final Report v0.2

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Indian Institute of Management Bangalore

Group 4Portfolio Analysis ofICICI Lombard and

New India AssuranceA Project on Marketing ManagementSubmitted to Prof. Y L R Moorthi

By

Ajay Bhatia - 0911289

D Dineshkumar - 0911305

Rangineni Srikanth -0911336

Vandit Bhurat - 0911352


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A Project on Marketing Management Group4

Acknowledgement

We sincerely acknowledge our gratitude to Kalluri Raghuram, Prof. G

Sabarinathan, Prof. D. Pasupati and Sriram Krishnaswamy for their valuable

suggestions and constant encouragement for successful completion of the project.

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IntroductionThe non-life or general insurance industry in India has grown rapidly in the past fewyears. The sector registered an astounding growth of 11% in 2008. This market has

witnessed a number of policy and regulatory changes in the last decade, resulting in

intense competition from private companies.

In 2008, there were 21 companies operating in this sector in India1, of which 15 are

private companies. The key players of the market include:

Public Sector: National Insurance Company Limited, Oriental Insurance Limited,

New India Assurance Company Limited and United India Insurance Company

Limited.Private Sector: Bajaj Allianz, Tata AIG, ICICI Lombard, Reliance General Insurance.

These companies offer products in various segments like

1) Fire 2) Health 3) Motor 4) Accident 5) Marine

This report tries to capture the key features of the non-life insurance market and to

analyse the relative performance of ICICI Lombard and New India Assurance vis--

vis the attractiveness of each segment

We have divided our study in three parts:

1) Segment Analysis Analyze the attractiveness of different segments in theinsurance sector based on specific criteria.

2) Company Competitiveness Analysis Study and analysis of different

companies in all the segments on the basis of critical success factor

3) Portfolio matrix Segment Portfolio matrix is a 2D Framework which tries

to capture the relative performance of two companies in each segment with

respect to the relative attractiveness of the segment.

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Segment AttractivenessThere are 5 major line of business in non-life Insurance Fire, Marine, Motor, Health

and Accident. Each of these segments offers varying degree of attractiveness. This

section tries to assess the relative attractiveness of each segment based on certain

criterion.

As per our analysis, we have identified the below criteria to be the key factors which

determines the attractiveness of the segment.

1. Profitability2. Growth Rate3. Competition Intensity4. Market Share5. Untapped Potential6. Chances for Fraud7. Scope of Product Differentiation8. Distinctiveness of Distribution Channel

The segments are graded for each of the above parameters in relative scale from 1

to 5 with 1 as least attractive and 5 being most attractive.

1) ProfitabilityThe basic criterion which determines the attractiveness of the segment will be itsProfitability. Profitability of a company operating in any Insurance segment mainly

depends on two factors

a) Incurred Claims ratio

b) Cost of Operation

Incurred Claims ratio

Incurred Claims Ratio = Claims Incurred / Total Premium earnedAs the formula indicates, Claims ratio gives a high level indication of the profit\Loss

margin one can expect by operating in the segment. Lower the Claims ratio, the

more attractive the segment is. The amount of Claims incurred in turn depends onnumerous factors and varies from Insurance segment to segment. Lets have a look

at each segment in isolation

Fire Insurance

Fire Insurance is the most profitable with lowest claims ratio, the reason being the

very less probable occurrence of the risk (fire accident) and the robust fraudulency

check in place post incident. Fire segment which used to have a claims ratio in the

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range of 40-60% some 3 years back has undergone a series of set-backs after the

announcement of detarrification1 in Jan 2007. As a result of the detarrification,

companies are free to adapt their own pricing strategy. Still Fire Insurance has

better profitability when compared to the other segments.

Marine Insurance

The frequency of risk occurrence is very less, but each instance of risk will have

huge claims value. It has a claims ratio of around 60-90%. But most of the marine

policies are reinsured to a large extent since the sum assured under each category

is of large magnitude. Over the years marine has been a profitable portfolio, but

there have been some sporadic instances of unfavorable claim ratios (because of

higher claim value).

Motor Insurance

Being the segment with highest market share & highest penetration, it has adverseclaim histories. It was one of the loss-making segments. It has claims ratio in the

range of 80- 120%. The private players in the past have been reluctant to enter this

sector. In order to reduce the burden, the regulator created a Third party Motor

vehicle pool, wherein an insurers participation in premium and losses is based on

its market share in all the businesses. This pool is managed by GIC. Also the

premium rate has been increased on a large scale to offset these losses.

Health Insurance

Health Insurance has been one of the least profitable sectors with claims ratio in therange of 120150%. The reason for this low profitability can be attributed to

Varying treatment costs across providers due to limited bargaining power Lack of standardization & accreditation in most healthcare facilities leading to

difficulty in judging the authenticity of procedures & costs Ease of Fraud and ineffective fraudulency check Insufficient data on Indian consumers & disease patterns resulting in difficulty

in product development & pricing

Accident Insurance

Personal Accident Insurance is one segment which is still in its niche stages. Being a

retail Insurance segment, it has a huge potential for growth like Health Insurance.

The segment being relatively new and having less volume does not have a claims

ratio which is consistent across the companies. Hence one can see a huge variation

in claims ratios between companies and in fact within a company between different

years.

Cost of operation

Major chunk of the cost of operation is contributed by commission paid to the

agents, salary paid to the employees and advertisement and promotion expenses.

Since most of the companies have their presence in all the Insurance segments.

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Most of the fixed costs like Advertisements & Sales promotion are done at the

company level and not at the segment level. But some of the variable costs like

commission to agents can be divided or distinguished between different segments.

One can observe that these variable costs are directly proportional to thecompanys market share in the segment. Hence as the companys market share

grows, its variable cost also goes up. But the company starts enjoying economies of

scale with respect to the fixed cost.

Considering the above facts, one can say that impact of cost of operation on the

profitability does not vary significantly between the segments.

ProfitabilitySegmen

tIncurred Claims

RatioRank

Fire 68.69 5

Motor 92.31 3

Health 107 1

Marine 86.68 4

Accident 102 2

2) Growth Rate

Sector growth rate is one of the crucial factors in segment attractiveness criteria.With the opening up of insurance sector, many new players entered the market.

Growth Rate in Premium underwritten from 2007 to 2008 is an appropriate

indication of the segment growth rate. The relative rating of the segment based on

the growth rate is given in the table below

Growth Rate in Premium Underwritten2007-2008

Segment

2006-07

2007-08

GrowthRate

Rank

Fire2221.

582037.

83 -8.27% 1

Marine900.0

2980.9

4 8.99% 3

Health2242.

633106.

84 38.54% 5

Motor5847.

576459.

98 10.47% 4Accident

394.91 432.9 9.62% 3

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Health21.296315

914.3744061

2625.6

7 2Accident

1.180281343

5.748134232 6.93 5

4) Market Share

Greater the market share (premium), greater will be the gross profit realized

by the company. The table below shows the market share of in 2007-08. MotorInsurance occupies the highest market share occupying 43.98%, followed by health

(19.9%), fire (11.18%)1 and Marine(6.5%). Fire insurance in spite of being profitable

has declined in market share because of the price pressure caused by

detariffication. Health & Motor Insurance has shown a steady growth over the past

decade.

Market Share in 2007-08Segment

Premium

MarketShare

Rank

Fire 3420.04 11.18% 3

Marine 1990.7 6.50% 2

Health 6090.37 19.90% 4

Motor13458.4

8 43.98% 5

Accident 902.91 2.95% 1

5) Untapped Potential

Greater the untapped market easier it is to enter into the segment. The Untappedpotential in each segment in assessed keeping in mind the following

1) The Health Insurance is one of the least explored and fastest growing segments

in India. The segment stood at Rs. 5125 crores in 2008 covering just 2% of the

population of the country. The penetration ration of accident Insurance is similar to

health

2) Fire insurance targets large and medium corporate houses. There is significant

untapped potential in the form of retail businesses and individual homes.

3) Motor insurance has very less untapped potential owing to government

mandated insurance policy.

4) Normally businesses insure goods while transporting them leaving very lessuntapped potential in marine insurance.

Based on the above analysis the segments are rated as follows

Segment

Untappedpotential

Rank

Fire Medium 3

Marine Low 2

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Health Very High 5

Motor Very Low 1

Accident High 4

6) Chances for FraudFraudulent Claims is the one of the most serious issues facing the insurance

companies. Higher the possibility of frauds the less attractive the segment

becomes. It not only makes more loss on claims but is also forced to incur more

expenses on thorough investigation to avoid false claims.

The segments are rated based on two factors

1) The ease of committing a fraud 2) Robustness of Fraudulency check

Losses due to frauds is highest in motor and health due to high ease of committing

fraud accompanied by difficulty in fraudulency check by the companies as itsdifficult to go and investigate each and every claim made by the customers. This is

followed by accident and marine insurance in which frauds can be detected up to an

extent with the help of the investigation teams. In case of fire insurance there is a

high robustness of fraudulency check which lowers the ease of committing fraud

making the losses due to fire insurance fraud the lowest.

Type ofInsurance

Ease of Committing Fraud

Robustness of Fraudulency Check

Ratings

Motor High Low 1

Health High Low 1

Fire Low High 5Accident Medium Medium 3

Marine Low Medium 4

7) Scope for Product DifferentiationIn the detariffied regime and with the increasing competition, profitability and

growth would be driven by product innovation. The scope for product differentiation

and innovation varies across the segments.

Under the detariffication conditions, where people differ with respect to preferences

and risk evaluation, the scope for product differentiation is huge. In a market

wherein the insurers know the expected cost for each individual in terms of his risk;

product differentiation and innovation becomes an integral part.

Health Insurance

Health Insurance presents a sizeable opportunity for growth and product

differentiation. The escalating cost of medical treatment today is leading to an

increase in the demand for health insurance. Moreover there is huge variability

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involved in terms of different diseases involved; time span of diseases; age based

disease differentiation. Hence health insurance is the most promising segment in

terms of product differentiation such as cashless hospitalization, health plus

international credit cards etc.

Accident Insurance

After Health, the accident insurance segment is the most attractive segment.

Accidents may occur in different ways which is why the scope for product

differentiation is huge. Moreover the potential customer for this segment is each

and every individual irrespective of age, profession and location. As a result the risk

involved varies which calls for different innovative products such as missile testing

insurance

Fire Insurance

Fire insurance is again related to accidents and involves a wide range of customershaving varied risk factor. The scope for product differentiation can be seen in terms

of plans for different corporate, personal housings, multiplexes, stadiums and other

buildings. Based on the evaluation of the risk involved different products can be

customized for different cases.

Motor Insurance

Motor insurance is a compulsory insurance and every new vehicle on the road has

the insurance and hence the scope for product differentiation or the motivation for

the same is not so attractive. And the variability in the motor insurance is also low

in terms of the different aspects of motor being insured; with people giving little

importance to the different features of the motor insurance which comes along withthe vehicle. Product differentiation can be seen in terms of extension of insurance

to motor accessories, passenger insurance and so on. However this segment is not

so promising in terms of product differentiation.

Marine Insurance

Marine Insurance segment is the least attractive among the other segments in

terms of product differentiation. It is majorly concerned with cargo and hull

insurance and the scope for differentiation is not too attractive.

Segment

Product/Differentiation

Fire 3Marine 1

Motor 2Accident 4Health 5

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8) Distribution channelsOne of the important challenges faced by the insurance industry is using the right

distribution channel to reach the potential customer. There are multiple channels to

take insurance to a customer. Some segments have an edge over the others due tothe distinctiveness of distribution channel. For example, fire insurance can be

distributed through hospitals and pharmacies and motor insurance through car

dealers. The table below summarizes the types of channels that can be leveraged in

each segment.

Segment-Wise Distinctiveness of Distribution Channel

Segment FireHealth

Motor

Marine

Accident

Individual Agents Corporate Agents Brokers Bancassurance(Banks)

WorksiteMarketing

Internet

Telemarketing Hospitals Dealers/Garages

Transport Cos NGOs, MFIs,SHGs

Retailassurance Add on benefit Total 4 11 7 4 10

Though health and accident appears to most attractive based on distribution

channel, the following considerations were also made before ranking the segments.

1) The fire insurance cannot be issued without the permission of the insurer. Insured

should have insurable interest in the asset at the time of contract as well as at the

time of loss. This is limiting the number of distribution channels possible in fire

insurance.

2) Though the penetration of distribution network of health insurance is less, it is

growing at a rapid pace. The government is easing regulations and actively

encouraging worksite marketing, TPAs and NGOs to popularize health insurance.

3) With compulsory insurance policy for automobiles, motor insurance has highly

penetrated distribution network.

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4) Marine insurance is sold through transport companies which makes it readily

available while transferring cargo.

Segme

nt

Attractiven

essFire 2

Marine 4

Motor 5Accident 3

Health 3

Final Segment Attractiveness RatingsDifferent Parameters are given different weights to determine the final rating of

each segment.

1) Profitability is assessed as the most predominant factor in determining the

attractiveness of the segment with a weight of 20%. Company should try to avoid

segments which offer very little chance to make sustainable profits.

2) Market Share and Product Differentiation is the next most determining factor

(15%). Segments that have less market share only offers small revenue. This is notdesirable especially for large players like New India and ICICI Lombard. For an

almost stagnant industry like non-life insurance the best move a company can take

to be distinct is product differentiation

3) All the other parameters are of equal weight as it is difficult to undermine the

significance of any in determining attractiveness.

Based on the above weight each segment was ranked as shown in table below. This

is again in a 1 to 5 scale with 1 denoting least attractive and 5 indicating most

attractive.

Segment Attractiveness

Criterion WeightsFire

Marine

Motor

Health

Accident

Profitability 20% 5 4 3 1 2

Growth Rate 10% 1 3 4 5 3

Competition 10% 3 1 3 2 5

Market share 15% 3 2 5 4 1

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Chances for Fraud 10% 5 4 1 1 3

Untapped Potential 10% 3 2 1 5 4Product

Differentiation 15% 3 1 2 5 4Distribution channels 10% 2 4 5 3 3

Net Rating 3.3 2.65 3.05 3.15 2.95

Critical Success FactorsThe success of a company in any sector depends upon its competency in taking

care of the Critical Success Factor (CSFs). The relative competitiveness of a

company vis--vis its competitor can be measured using CSFs.

Based on the analysis the following factors are identified as CSFs for non-life

insurance segments.

1) Brand Value

2) Client Service

3) Strength of Distribution

4) Product Differentiation

5) Claim Settlement Ability

6) Underwriting Performance

7) Prudent Investing

The relative competitiveness of ICICI Lombard and New India Assurance for each

segment is rated based on these parameters in scale from 1 to 5 with 5 denoting

most competitive and 1 as least competitive.

1) Brand ValueBrand of value of insurance companies depends on a number of factors like

advertising effort, experience in business, brand value of parent company, general

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customer opinion etc. Business Standard, In the February 10, 2008 issue rated the

general insurance company on its brand image (Exhibit 7).This rating is used as an

appropriate measure to grade the brand value of each company as shown below.

CompanyImageScore

BrandValue

ICICI Lombard 11538 5

New India 4860 2

2) Client ServiceThe success of an insurance company depends to a great extend on the level of

service offered to its customers. Unlike other CSFs this is an internal factor and also

is a measure of the success of the company. Customer service has a feedback

effect on the company. The quality of service can impact the success of the

company in two ways.

a) A major share of the income is through policy renewal. An unsatisfied customer

will most definitely seek a new insurer. Therefore it is imperative for every

insurance company to maintain high levels of satisfaction for retention of

customers.

b) Good service can also build a reliable image for the company and fuel sustained

word-of-mouth marketing. A new Customer decision is largely influenced by the

opinion of existing policy-holders.

Customer service is of extreme significance for insurance especially becauseinteractions with customers take place continuously and in different stages. The

company has to offer good service at all these stages to retain and also to expand

its customer-base. The rating of companies for this factor is carried based on third-

party rating.

Health and Accident Insurance

A survey on customer satisfaction was carried out by May-June 2006 issue of

Customer Voice. The survey was based on the following parameters

1) TPA 2) Tangibility 3) Problem Solving 4) Reliability 5) Responsiveness 6)

Assurance 7) Empathy

The result of the survey is given in (Exhibit 2).

Since the type of personal care and service in accident insurance is relatively

similar to health insurance, the same rating is used for accident

Motor Insurance

Each company is rated on the basis of the recent study released by J D Power on

Customer Satisfaction Index (CSI) of General Insurance companies in Indian Auto

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Sector (Exhibit 3). The industry average is 761. This is given a grade of 3. ICICI

Lombard was rated at the top of the list with a score of 775. ICICI is therefore

graded as 5. The other companies are graded based on these two ratings. Since the

type of personal care and service in accident insurance is relatively similar to Motorinsurance, the same rating is used for accident as well.

Fire and Marine Insurance

There are no dedicated data or survey available on fire, marine insurance. These

are distributed primarily through corporate agents similar to motor Insurance. The

customer ratings of motor insurance are therefore used for these segments as well.

Based on the above inputs the segment wise grades of ICICI Lombard and New India

Assurance for customer service are as summarized in the table below

Company Health Motor Accident Fire MarineICICILombard 5 5 5 5 5

New India 1 3 1 3 3

3) Strength of Distribution The number of customers covered by the company is directly related to the

strength of its distribution network. Both ICICI and NIA have strong distribution

network and are actively exploring new channels. The Distribution strength of each

segment is based on the major channels used by both companies. This include

1) Brokers: Since brokers distribute insurance policies of all insurers, the relative

aggressiveness of each broker depends on the commission that a company is

willing to pay. NIA pays an average commission of 9% of premium while ICICI

Lombard has limited this to 6%.

2) Agents: The number of agents (individual and corporate) for the leading

insurance companies is given in (exhibit 6). This is used to rate the strength of

agency network of ICICI Lombard and New India

3) Bancassurance: NIA and ICICI Lombard have tied up with SBI and ICICI

respectively to distribute their products. Though the number of branches is more forSBI, we have given a more rating to ICICI Lombard. ICICI being the parent company

is involved in more aggressive selling in its branches.

4) Internet & Telemarketing: ICICI has well-developed online distribution

network which enables policy issue and renewal. New India is yet to leverage the

use of internet for distribution.

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CompanyCommissions to brokers

Individual Agents

Corporate Agents

Bancassurance

Internet &Telemarketing

ICICILombard 2 2 3 3 5

NIA 3 4 5 3 1

All these channels are not used in all segments. Since most of the clients of Fire and

Marine are commercial institutions, corporate agents play a major role in these

segments. Health is usually distributed through employers and therefore corporate

agents are inevitable here as well. The relative reach of individual agents is

maximum in health and motor as these targets mainly retail customers. Internet

banking is predominant in health and accident but is absent in fire and marine.

Relative importance of distribution channels in each of the segments is rated inbelow table.

Channel Fire MotorHealth

Marine

Accident

Brokers 25% 15% 15% 20% 15%

Individual Agents 15% 30% 30% 30% 25%

Corporate Agents 35% 20% 30% 50% 35%

Bancassurance 25% 30% 15% 0% 15%Internet &

Telemarketing 0% 5% 10% 0% 10%

Based on the above weights and ranks ICICI and NIA are rated as below

Segment FireMotor

Health

Marine

Accident

ICICILombard 2.6 2.65 2.8 2.5 2.8

New India 4.1 4.35 4.2 3.9 4.2

4) Product Differentiation The detariffication of sector resulted in increased competition and considerablepricing pressure. It facilitated product innovation and customization to suit the

specific need of the customers. Innovative pricing, product development and

product differentiation have become critical factors for success and demand a

disciplined customer-centric approach to expand the market and improve

penetration.

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Pricing

Detarrification has caused intense price war in the segment. The premium rates are

at the lowest possible sustenance level. Intense competition has forced all players

to focus more on product rather than price. Therefore pricing no longer offers anyadvantage in this sector for any segment.

Product Innovation

Companies have tried to appeal to the customers with customized fit-to-the-needs

insurance schemes to score over the competition. Innovation has resulted in

bundling and customization of products. For example, apart from offering accident

and fire insurance exclusively, they also offer both in a single scheme.

To rate the companies on the basis of product differentiation, All the policies offered

by a company was scrutinized to see what segment each covers. For example,

Baggage Insurance from New India Assurance offers fire and accident insurance. Allthe insurance plans are summarized in (exhibit 4 and 5). The table below gives the

synopsis of this analysis and the resulting rating.

Product Differentiation

Segments

ICICI Lombard New IndiaNo. ofProducts

Grade

No. ofProducts

Grade

Fire 18 5 10 4

Health 28 5 4 1

Motor 4 3 1 1

Marine 4 3 3 2Accident 24 5 19 4

5) Claim Settlement AbilityThe ability to settle claims quickly is an important parameter used to rate insurance

companies. Clients, especially commercial establishments, prefer companies with

huge liquidity. Solvency ratio can be used as a measure to rate this ability.

The solvency ratio of an insurance company is the size of its capital relative to

premium written. It is often defined as:

Solvency Ratio = Net Assets / Net Premium Written

The solvency ratio is a measure of the risk an insurer faces of claims that it cannotabsorb. It is a basic measure of how financially sound an insurer is. In India, insurers

are required to maintain a minimum ratio of 1.5.

The solvency ratio of Insurers as on March 31 2008 is used for grading (Exhibit 8).

From the various solvency ratios, the industry average comes out to 2.13, which on

a scale of 5, is rated as 3. All the other ratios are rated accordingly.

Company Solvency Claim

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Ratio Settlement

ICICI Lombard 2.03 1

New India 4 5

6) Underwriting PerformanceThe Underwriting performance of an Insurance company is measured by a

ratio called Combined Ratio. A insurers combined Ratio is measured by

combining the net incurred claims and insurance-related expenses as a percentage

of net premiums. A combined ratio of less than 100% indicates that company is

generating positive return and more than 100% indicates the company is

encountering loss. For example combined ratio of 120% indicates that for every

rupee received as premium the company is spending Rs 1.20.

Combined Ratio = (Net Incurred Claims + Operation Expenses +

Commission) / Total Premium earned

Underwriting performance in the industry has been under increasing

pressure, especially since detarrification, which resulted in a price-war leading to

drop in premium rates to an extent of 80-85% in most segments. This also resulted

in the combined ratio of less than 100%, unreachable for the industry.

To compare ICICI and New India Assurance (NIA) in this aspect, we have taken the

average combined ratio for the last 3 years. The average is taken in order to

minimize any adverse impact on one year. The calculation of the combined ratios

and other ratios is shown in Exhibit 9 in detail.

Segments

New India ICICI

Combined Ratio

ClaimsRatio

Expenseratio

Grade

Combined Ratio

ClaimsRatio

Expenseratio

Grade

Health 184.37%136.74% 47.63% 3 149.99%

101.19% 48.80% 4

Fire 99.47% 61.49% 37.98% 5 160.62% 61.58% 99.04% 4

Marine 133.74% 80.46% 53.28% 4 395.92%157.36%

238.55% 1

Motor 143.19%

108.47

% 34.72% 4 114.14% 73.65% 40.49% 5Accident 118.50% 80.89% 37.61% 5 276.90%

139.06%

137.85% 1

As we can clearly see, ICICI has been performing better than NIA in core

Insurance sectors like Health & Motor Insurance, whereas NIA is performing better

than the ICICI in the other sectors such as Fire, Marine & Accident. ICICI has been

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able to maintain a better claims ratio especially in Motor Insurance and the reason

for that being attributed to its careful exposure and its prudent underwriting

practices. Private players like ICICI who entered the segment much later unlike NIA

have the opportunity to learn from the inefficient practices of the public sectorcompanies and take corrective measures right from the inception.

ICICI has been able to perform better in Motor & Health sector because of its

high market share and a considerable premium base. In sectors like Fire, Marine &

accident, ICICI has a smaller premium base (unlike NIA) and hence it is going

through diseconomies of scale and hence its combined ratios in these segments are

lesser than that of the NIA which actually enjoys economies of scale in these

segments.

Another important observation is, NIA has better Expense ratios than ICICI in

all the above segments, the reason for this can be attributed again to the hugepremium base built up by the NIA over the many years of its existence. Because of

a bigger premium base, NIA is enjoying the economies of scale. Most of its fixed

cost like Advertising & promotion expenses has become a miniscule portion of the

premium it receives, but for ICICI which has a lesser premium base these expenses

still forms a major chunk. Also another reason for the ICICIs high expense ratio is

most of the private players like ICICI are spending more money on its distribution

network and on Advertisements to increase their market share on a aggressive

mode, whereas public entities like NIA is not as aggressive like ICICI.

7) Prudent InvestingThe only way most of the companies is showing profits in their book is through their

Investments. Most of the companies offset their underwriting losses with Investment

returns to show profit. Hence one can clearly see the imminent need for Insurers to

adopt prudent underwriting practices along with cost-efficient structures to stay

competitive and profitable.

The general insurance companies have to follow overall investment policy as

prescribed by IRDA (Insurance Regulatory body). IRDA guidelines require the

appreciation in Equity investments (vis--vis the acquisition cost) to be parked in a

separate Fair Value Change account, to be accounted in Profit and Loss account

only on realization. The Fair Value Change account is thus an indicator of theadditional realizable profits of the insurance companies.

Based on the Total Investments, Investment returns and Fair Value Change Account

of the leading insurers (Exhibit 10), the companies are rated as given below

CompanyInvestmentReturns

Grade

ICICI Lombard 60.69 1

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New India 4.57 5

Segment-Wise Relative Competitiveness

Based on the CSFs enumerated earlier ICICI Lombard and New India were graded to

determine the relative competency of one with respect to the other in each

segment. The weight given to each CSFs were separately determined for each

segment based on their relative importance.

The ratio of the ratings gives the competitiveness index, which is measure ofrelative competitiveness. For example, if the competitiveness index of ICICI

Lombard with respect to New India is 1, it means that both are equally competitive.

A value less than 1 indicates that ICICI Lombard is less competitive than New India

and vice versa.

Fire1) Maximum weight is assigned to client service (25%) as most of the customers are

big commercial establishments. Any shortcomings in service will result in losing a

large customer.

2) The strength of distribution network, especially corporate agents plays a majorrole in increasing the number of clients (20%). The ability and liquidity to settle

claims is equally important as the claims are usually large (20%).

3) Almost all the other factors are of equal importance.

The final competitiveness of ICICI with respect to New India is 0.87. This means that

though ICICI is close to New India in this segment, its still lagging behind.

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Company Competitiveness - Fire

CSFWeights

NewIndia

ICICILombard

Brand Image 10% 2 5Client Service 25% 3 5Strength of DistributionNetwork 20% 4.1 2.6

Product Differentiation 10% 4 5

Claim Settlement 20% 5 1

Underwriting Performance 10% 5 4

Prudent Investment 5% 5 1

Grade 3.92 3.42Relative Competitiveness : ICICI/NewIndia 0.87

Marine1) Similar to Fire, Client Service is most important here (25%). The significance of

claim settlement ability is more in this segment due to larger claims (25%).

2) Compared to any other segment, product differentiation is least important in

Marine as there is not much scope for differentiation

3) All the other parameters are similar to fire

Based on the above analysis, we conclude that ICICI Lombard is lagging behind NewIndia Assurance by a big margin as indicated by the competitiveness index of 0.75.

Company Competitiveness - Marine

CSFWeights

NewIndia

ICICILombard

Brand Image 10% 2 5

Client Service 25% 3 5Strength of DistributionNetwork 20% 3.9 2.5


Claim Settlement 25% 5 1Underwriting Performance 10% 4 1



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Motor1) Since this sector is the most penetrated, distribution network is the predominant

factor (25%).

2) Client Service is not that important as there is only a small portion of corporate

customers (20%).

3) Since a majority of the customers are retail, brand value (15%) and product

differentiation (10%) are more significant in this segment compared to fire and

marine insurance.

4) The chances for fraud are higher and this justifies the higher weight for

underwriting performance (15%).

5) Claim settlement takes a back seat due to relatively small values of individual

claims (10%).

In motor, ICICI is slightly better than New India with a competitiveness index of 1.05

Company Competitiveness - Motor

CSFWeights

NewIndia

ICICILombard

Brand Image 15% 2 5


Product Differentiation 10% 1 3Claim Settlement 10% 5 1




Health1) Health demand maximum product variety. The weight for Product differentiation

is large (20%)

2) The significance of client service (15%) and claim settlement (5%) ability falls

further due to larger share of retail customers.

The performance has reversed in this segment. ICICI Lombard is more competitive

with an incredible competitiveness index of 1.47

Company Competitiveness - Health

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CSFWeights

NewIndia

ICICILombard

Brand Image 15% 2 5







AccidentAccident is given same evaluation criterion as Health as there are not much

difference in the types of products offered and clients targeted.

The performance of ICICI is very close to that of New India with an index slightly less

than 1(0.97)

Company Competitiveness - Accident

CSFWeights

NewIndia

ICICILombard

Brand Image 15% 2 5Client Service 15% 1 5Strength of DistributionNetwork 25% 4.2 2.8






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Segment Portfolio MatrixSegment portfolio matrix is a graphical tool that illustrates the relative

competitiveness of two companies in different segments of operation. It also tells

how well positioned a company is with respect to the attractiveness of segments.

The matrix is a 2-D framework with Relative Company Competitiveness along the

horizontal and segment attractiveness along the vertical axis. Each segment is

plotted on the framework on specific points. The horizontal location of the point is

determined by the competitiveness index of the two companies in each segment.

The segment attractiveness score give the vertical location. The area of the circle

representing each segment is an indication of its size.

A portfolio matrix is drawn based on the analysis segment attractiveness and

relative competitiveness of ICICI Lombard and New India as shown below.

Analysis of the Portfolio Matrix

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Annexure 1: Answers to Queries on the Interim Report

1) You mentioned profitability, growth etc (p1, end) as segment attractivenesscriteria, do some brain storming and check if there are more criteria. Greater the

no. ofrelevant criteria, the more robust the segment attractiveness measure.We have come up with the following new Segment Attractiveness criteria

a) Chances for fraud & Fraudulency checkb) Scope for product differentiationc) Distribution channel

Also we have discussed with the Industry experts and financial professors of ourinstitute to validate our analysis for completeness.

1) Motor insurance claim losses are well known. Why does health make loss?

Health Insurance has been one of the less profitable sectors with claimsratio in the range of 120150%. The reason for this low profitability can beattributed to High & varying treatment costs across providers due to limited

bargaining power

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Lack of standardization & accreditation in most healthcare facilitiesleading to difficulty in judging the authenticity of procedures & costs

Ease of Fraud and ineffective fraudulency check

Insufficient data on Indian consumers & disease patterns resulting indifficulty in product development & pricing.

1) Why are claims lower in fire? Fraudulent claims can be made up in any categorynot just motor or health ?

The frequency of risk occurrence is very low in Fire Insurance whencompared to other insurance like Motor or health.

Since the claim amount of each fire policy is comparatively higher,there is a robust fraudulency check in place. Filing fire insurance is not

an easy or stress-free task. When you get the claim process started,the insurance company will send out a loss adjuster who will do athorough fraudulency check before giving his approval.

There will also be a police investigation and other judicial proceduresand that creates a lot of overhead for both the insured and theinsurers.

1) Why is fire more profitable?

Since most of the clients for fire insurance are corporates, the amountinsured was very high and the premium charged was alsoproportionately high as against retail insurance like Health\Motorwhere hefty premium cannot be charged.

Since the claim amount is very high, majority of the claims wereReinsured and hence major portion of the risk is ceded to theReinsurance company.

Also as mentioned in the previous question, the # of claims will be

substantially lower in fire Insurance

1) What is detariffication? Why did this bring down fires market share in non-life?Hasnt de-tarrification happened in motor and health?

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Earlier the premium rates used to be tarrifed. IRDA had the cap onpremium amount which should be charged for each segment, so thecompanies did not had any say on the premium rates. After de-tarrification, companies were given freedom to choose their premiumrates with some minimum approval from IRDA.

De-tarrification has happened in all critical segments like Fire, Motor &Health. After De-tarrification, segments which were lucrative then like Fire& Engineering had to reduce their premiums because of intensecompetition between players.

In segments like Health & Motor which were already in heavy losses,companies in turn decided together to increase the premium rates tominimize the losses, rather than decreasing the premium.

1) Given the competition (13 to 17 companies in each domain) do you see scopefor consolidation?

Margins in the Non-life Insurance industries are very thinner and thecustomer are more value conscious, so companies need the SCALEinorder to remain competitive.

As you could see from our report, New India Assurance is enjoying more

benefits than ICICI because of economies of scale.

Given that there are more than 20 companies in the Non-Life Insurancesector now, theres huge potential for consolidation especially in theprivate sector where the scale of many companies are very small.

With respect to the public sector, since most of the companies are alreadygood in terms of scale, we see very little scope for consolidation.

1) P3, table 3 why is the untapped potential so high in motor when it is

mandatory to take insurance for any vehicle bought. Can vehicles escapeinsurance

Earlier we had put high on untapped potential because we have

considered the person who does not any vehicles into account. Now we

have classified that under growth rate and hence have changed the

untapped potential as Low for Motor Insurance.

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2) Was the weightage given subjectively for the segment attractiveness criteria?Then give a justification for each of the weights chosen.

We have come up with weightage after taking inputs from the professors

and the Industry experts. Also we had a detailed discussion within our

team after doing a comprehensive study from various web sources. The

justification for the weightage is given in the page11 of the report.

3) On the face of it fire seems to be very attractive. However your numbers saythat fire, health, motor have nearly the same attractiveness. Is there some

misjudgment or can you explain it?

Fire insurance seems to be attractive from a profitability perspective, but

when we take other criterias like Growth rate, Market penetration etc.,

Motor & health seems to have more potential than the fire segment.

4) P5 You hv chosen 5 critical success factors (CSFs). It may be important to see ifthere are more CSFs. You may want to talk to some experts in the market beforeyou take a view on this? Minimum talk to all finance faculty in IIMB.

We have come up with new CSFs after taking the inputs from Industryexperts and finance profs in IIMB .

5) P6, table 1 when the csi number is high, the customers are more happy. Isthat how it is? Also how wide is the range of CSI? Ranging between 754 and 772.Is there significant difference between the top and bottom CSI levels? Does thecustomer really see much difference between the two? If not then how does onebuild a brand in this segment?

Yes! Customers are happy with the policy when the CSI index is high.Industry average of CSI index is 760. In our analysis we rated 760 as 3

and highest CSI value as 5.

6) P6 in all tables if the rating in the last column is higher is it better for thecompany?

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Yes the higher the value in the last column, it is better for the company.

7) Given that ICICI is seen as aggressive how come their agents are much fewer innumber than the PSU co.s?

ICICIs main source of selling is through corporate agents like Banks (ICICIBank etc), whereas if we take public sector companies like New IndiaAssurance, the majority of their focus in on the Agents (Individual).

1) Greater the number of policies, greater the innovation is this claimsustainable? Greater no. of policies can be sold bcos of strong selling. Does itnecessarily show greater policy smartness?

We apologize for the confusion, there was a wording issue. Its notPolicies it is Products. We mean to say Greater the number ofproducts (different variants of Insurance), the greater the innovation.

2) P7, table 2 can we say that quality of underwriting is directly related tocontrolling claims? The point is only genuine claims shd be entertained. Fraudshd be detected. Is the claim ratio really a good measure for this? A low claimratio merely means less claims have been admitted and not necessarily betterclaims (am I right?)

Eventhough quality of underwriting is not the only factor for controllingclaims, but definitely its a very important factor. For eg: in HealthInsurance the more analysis the underwriter do by studying the disease orrisk patterns, and consider that in product development and pricing, therewill be a better control on the claims ratio.

Ideally as a industry standard to measure Underwriter efficiency, a ratiocalled Combined Ratio is being used. We have used that ratio in therevised report.

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Exhibit 1

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Segment-Wise Change in Market Share from 2006-07 to 2008-09

Fire

Year2008-09 2007-08 2006-07

NamePremium

MarketShare Name

Premium

MarketShare Name

Premium

MarketShare

Company1 New India 774.67 22.65 New India 743.42 21.74 New India 909.98 26.61Company2

UnitedIndia 572.79 16.75 United India 524.3 15.33

UnitedIndia 674.77 19.73

Company3 Oriental 436.51 12.76 Oriental 499.72 14.61 Oriental 538.5 15.75Company4 National 397.08 11.61 ICICI 438.25 12.81 National 491.21 14.36

Total 3420.04 63.77 3516.8 64.49 4163 76.45Change in share

2008-20090.72

Change in share 2008-2009

11.95 Total Change 12.67

Marine

Year2008-09 2007-08 2006-07

NamePremium

MarketShare Name

Premium

MarketShare Name

Premium

MarketShare

Company1 New India 446.34 22.42 New India 437.28 26.76 Oriental 349.78 19.05Company2 United 336.93 16.93 Oriental 343.54 21.03 New India 321.03 17.49

Company3 Oriental 332.53 16.70 United 300.83 18.41 United 264.34 14.40Company4 ICICI 223.85 11.24 ICICI 224.55 13.74 National 196.97 10.73

Total 1990.7 67.30 1633.81 79.95 1835.72 61.67

Change in share2008-2009 12.65

Change in share 2008-2009 18.28 Total Change 30.93

Motor

Year2008-09 2007-08 2006-07

NamePremium

MarketShare Name

Premium

MarketShare Name

Premium

MarketShare

Company1 National 2137.9 15.89 National 2143.69 16.74 New India 2034.73 19.05


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Exhibit 2

Customer Voice - Customer Satisfaction Rating of Health Insurance CompaniesName of theCompany

TPA

Tangibility

ProblemSolving

Reliability

Responsiveness

Assurance

Empathy

OverallRank

Rating

A AIG 2 2 1 1 1 1 1 1 5

HDFC Chubb 2 1 1 2 2 2 2 2 5

Bajaj Allianz 2 1 1 2 2 2 2 2 5

ICICI Lombard 2 1 1 2 2 2 2 2 5

IFFCO Tokio 2 1 1 2 2 2 2 2 5

Royal Sundaram 6 4 9 11 4 4 8 6 3

Oriental Insurance 10 8 6 4 7 9 7 7 2

Cholamandalam 5 10 7 10 8 7 6 8 2

New India Assurance 11 11 8 7 9 10 9 9 1United IndiaInsurance 8 9 11 9 10 8 10 10 1

National Insurance 9 7 10 8 11 11 11 11 0

Exhibit 3

J D Power Customer SatisfactionIndex

CompanyCSI

Rating

ICICI Lombard775 5

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Oriental772 5

National Insurance764 3

New India763 3

Bajaj Allianz762 3

Industry Average761 3

TATA AIG760 3

United India755 2

Reliance754 2

HDFC Ergo747 1

Royal Sundaram744 1

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Exhibit 4

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ICICI Lombard Product Differentiation/Innovation

Segment Fire Health Motor Marine AccidentCar Insurance Commercial Vehicle Insurance Consequential Loss(Fire) Insurance Corporate Cover Corporate Overseas Travel Corporate Overseas Travel - Gold Plan Corporate Overseas Travel - Silver Plan Critical Care Insurance Domestic Travel Educational Institution Package Policy Erection All Risk Farmers Package Fire and Special Perils Policy Group Health / Group Health (Floater) Covers Group Mediclaim Insurance Policy Group Personal Accident Health Advantage Plus Insurance Home Insurance Home Safe + Insurance Hotel Corporate Cover Individual Overseas Travel Insurance - Gold Plan Individual Overseas Travel Insurance - PlatinumPlan

Industrial All Risk

Janata Personal Accident Malls and Multiplex Policy Marine Export Tansit Insurance Policy Marine Hull

Marine Import Transit Insurance Policy Marine Inland Transit Insurance Policy Office Package Policy Parents' Health Petrol Station Package Policy Public Liability Act Only - Gold Plan Public Liability Act Only - Silver Plan Public Liability Insurance (Industrial Risks) Public Liability Insurance (Non-Industrial Risks) Rural Health Insurance Rural Home Insurance Senior Citizen Overseas Travel - Gold Plan Senior Citizen Overseas Travel - Muti-trip Plan Senior Citizen Overseas Travel - Platinum Plan Shop Insurance - Health Cash Plan Shop Insurance - Health Double Benefit Plan Shop Insurance - Health Family Floater Plan Shop Insurance - Medical Expenses Insured Student Medical Plans - Bronze Plan Student Medical Plans - Gold Plan Student Medical Plans - Plus Plan Student Overseas Travel - Bronze Student Overseas Travel - Gold

Tractor Two Wheeler Insurance Total 18 28 4 4 24


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Exhibit 5

New India Assurance Product Differentiation/InnovationSegment Fire

Health

MotorMarine

Accident

Aviation Personal Accident (crew member)Insurance

Bankers Indemnity Policy Bhagyashree Child Welfare Policy Birthright Insurance Policy Contractors All Risk Policy Family Package cover Fire Policy Golfers Indemnity Insurance Policy Gramin Personal Accident Policy Group personal Gun Insurance Householders Policy

Jan Arogya Bima Policy Janata Personal Accident policy Jewellers Block Policy Lift (Third Party) Insurance Marine Cargo Policy Marine cum Erection Policy Marine Hull Policy Motor Policy Multi Peril Policy for L.P.G. Dealers Neon Sign Insurance Passenger Flight Coupon Personal Accident Policy Pravasi Bhartiya Bima Yojana Policy Product Liability Policy Public Liability Policy Raj Rajeshwari Mahila Kalyan Yojna Rasta Apatti Kavach Shopkeepers Policy Special Contigency Policy Student Safety Insurance Universal Health Insurance Scheme Total 10 4 1 3 19

Exhibit 6

Agent Distribution Channel

Life Insurers

Individual Agents

Gra

de

Corporate

Agents3

Grad

e2 New India 9346 5 16 4

National 8865 4 13 3

United India 7165 4 38 5

Oriental 10215 5 8 2

ICICI-Lombard 1170 3 5 1

Bajaj Allianz 1718 3 7 2

Tata-AIG 337 2 10 3

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Reliance 168 1 1 1

Exhibit 7

Business Today Rating

CompanyImageScore

Grade

ICICI Lombard 11538 5

Bajaj Allianz 8227 4OrientalInsurance 8008 3NationalInsurance 6489 3

HDFC Chubb 6177 3

United India 5223 2

New India 4860 2TATA AIG 3634 1

Reliance 3015 1

IFFCO Tokio 2635 1

Exhibit 8

Solvency Ratio (As On 31stMarch 2008)

CompanySolvencyRatio

Grade

Bajaj Allianz 1.55 1Cholamandalam 1.89 2

HDFC Chubb 2.02 2ICICILombard 2.03 2

IFFCO Tokio 1.51 1

Reliance 1.64 1RoyalSundaram 1.59 1

Tata AIG 1.91 2

FutureGererali 2.61 3

New India 4 5

United 3.24 4

Oriental 1.91 2

National 1.8 1

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Exhibit 9

Combined Ratio

Company2009-

082008-

072007-

06Avera

ge

Health

New IndiaAssurance

141.06%

127.08%

284.95%

184.37%

ICICI Lombard125.73

%149.88

%174.34

%149.99

%

Fire

New IndiaAssurance

103.21%

93.26%

101.94%

99.47%

ICICI Lombard170.71

%154.37

%156.78

%160.62

%

Marine

New India

Assurance

172.16

%

140.36

%

88.69

%

133.74

%

ICICI Lombard386.87

%430.24

%370.64

%395.92

%

Motor

New IndiaAssurance

167.53%

138.75%

123.29%

143.19%

ICICI Lombard118.81

%109.80

%113.82

%114.14

%

Accident

New IndiaAssurance

131.74%

82.13%

141.63%

118.50%

ICICI Lombard

373.61

%

191.58

%

265.52

%

276.90

%

Exhibit 10

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38 | P a g e

Return of Investments as on 31st March 2008

Company

Investments (inlakhs)

Incomefrom

Investments (inlakhs)

Fair Value

ChangeAccount (inlakhs)

Total

Returns(inlakhs)

Return

oninvestments (%)

Grade

RoyalSundaram 55903 1305.3 -96 1209.3 2.51 1

Bajaj Allianz 186323 4763.33 -253 4510.33 2.69 1

Tata AIG 68192 1934.7 265 2199.7 3.23 1

Reliance 131073 3643.71 -982 2661.71 3.53 1

IFFCO 54297 2198.68 0 2198.68 4.05 1ICICILombard 237376 9070.71 -1787 7283.71 4.57 1Cholamandalam 32999 803.97 -252 551.97 3.20 1

HDFC Chubb 22130 635.21 29 664.21 3.00 1

Future Gen. 11082 551.9 3 554.9 5.00 1

New India 2463287 99122 1395927 1495049 60.69 5

Oriental 1316751 34228.25 761484795712.

25 60.43 5

National 1271798 27382.63 730930758312.

63 59.63 5

United India 1240363 55110.43 503743558853.

43 45.06 4


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1 http://www.livemint.com/2009/04/01221819/Heavy-discounts-on-fire-engin.htmlwww.icraratings.com

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final report v0.2

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