Transcript B.G.PATKI ‘MOTOR’ RISK MANAGEMENT & AUTOMOBILE …

B.G.PATKI
‘MOTOR’ RISK MANAGEMENT
&
AUTOMOBILE ACCIDENT
TECHNOLOGY
CONSULTANT
B.G.PATKI
MARCH
TOWARDS
MOTOR-DETARIFF
CURRENT SCENARIO
VEHICLE POPULATION
STATUS OF ‘MOTOR’
OUTG0ES IN OD
OUTGOES IN LIABILITY
TARIFF
ITS
HISTORY
CONCEPT
ALMOST 100 YRS OLD.
INSURANCE ASSOSIATION OF INDIA
MANY COS. WERE MEMBERS
KNOWN AS TARIFF COS.
LAID DOWN RULES,
RATES,
CONDITIONS
DISCOUNTS
ADD-ON COVERS ETC.
HAD TO BE STRICTLY FOLLOWED
TARIFF COS. HAD
 IDENTITY
 CONFIDENCE, FAITH OF THE
INSURING PUBLIC SINCE MANY BIG
& REPUTED COS WERE MEMBERS.
 CONSCIOUS DECISION NOT TO
INDULGE IN UNHEALTHY
COMPETITION

AVOID PRICE WAR
SINCE TARIFF REGULATIONS PUT A
BAR ON SUCH PRACTICES
FORMATION OF TAC
AROUND LATE SIXTIES(1969)
OUT OF INSURANCE ACT AROSE
IMT
WHY TARIFF?
IN THE INITIAL DAYS OF THE GENERAL
INSURANCE
IN DEVELOPING COUNTRIES,
GLOBALLY
DESCIPLINED STRUCTURE OF THE
PRODUCT WAS HIGHLY ESSENTIAL
IN ABSENCE OF SUCH DESCIPLINE:
IN THE EXCITEMENT/ COMPETETION
OF PROCURING THE BUSINESS
INCOME
PRICING COMPONENT IS THE IST
VICTIM
EVEN RISK PATTERNS, PERILS,
CONDITIONS WERE PUT ON BACK BURNER.
JUDICIOUS RISK ADOPTION MOST LIKELY
WOULD GET THROWN TO WINDS.
IN SUCH A SCENARIO
DANGER LOOMING OVER THE COS.
VIRTUALLY BITING MORE THAN THEY
COULD CHEW.
RESULT?
DANGER OF BANKRUPTCY.
WHO ARE THE SUFFERERS?
1.INSURING
PUBLIC
2.SHAREHOLDERS
3.EMPLOYEES
INSURANCE IS BASED ON PRINCIPLE
OF PROBABILITY.
CONCEPT HAS MAXIMUM RELEVANCE
IN
MOTOR, MARINE
AMONGST OTHER PRODUCTS.
MOTOR FACES CONTINEOUS
CHALLENGE
NOT JUST LIABILITY BUT OD AS WELL
OD LOSSES MINOR TO MAJOR TO
TOTAL LOSS
AND HAPPENING MENACINGLY ON
REGULAR BASIS
MOTOR MANAGERS MAY NOT TAKE
ADEQUATE CARE LEADING TO
LOSSES RESULTING IN BANKRUPTCY
OR AT LEAST CURB GROWTH
IN TARIFF SCENARIO,
EXPERTS HAVING OVERVIEW AS WELL
AS EXPERTISE CAN
PRICE THE PRODUCT
MAY BE HIGHER
BUT
PROTECTING FROM THE
DISASTER
THIS PROCESS IS CALLED
TARIFF
TARIFF IS SEEN AS THE
PROTECTIVE RING.
CONSIDER FROM DAILY LIFE
 GARDENING:
PLANTING TREES IN BACKYARD
 IRON FENCE AROUND
FOR SAFEGUARDING/ PROTECTION
IN ITS
INITIAL YOUNG DAYS
VISUALISE WHEN TREE GROWS
WHAT NATURALY FOLLOWS?
TRUNK OF THE TREE LARGER THAN RAILING
RAILING WHICH WAS PUT AROUND FOR
PROTECTION
NOW IN GROWTH TREE WILL NEITHER
BREAK IRON BAND NOR BAND WILL
EXPAND
BUT WILL START BITING INTO THE
TRUNK OF TREE
DEFEATING VERY PURPOSE WHY
PROTECTIVE FENCE RING WAS PUT
IN THE FIRST PLACE
WHAT IS THE SOLUTION?
REMOVE THE PROTECTION IN TIME
AND
ALLOW THE TREE TO GROW
TO
ITS FULL POTENTIAL
SAME HOLDS TRUE FOR
MOTOR
INSURANCE
TARIFF
REMOVAL OF TARIFF, THE
PROTECTIVE FENCE
IS EXPECTED TO ALLOW THE
EXPECTED EXPONENTIAL GROWTH &
BLOSSOM TO
ITS FULL POTENTIAL.
AFTER ALL, AUTOMOBILE INDUSTRY
IS GROWING AT A TREMENDOUS PACE
IN INDIA
VIS-À-VIS
MOTOR INSURANCE
NOW THAT THE TREE/ INDUSTRY HAS
GROWN—GROWING—BLOSSOMING
STAGE REACHED WHEN IT CAN TAKE
CARE OF ITSELF WITHOUT ANY
PARENTAL PROTECTION
THIS PARENTAL
PROTECTION NOW
NEEDS TO BE
WITHDRAWN
THIS IN NUTSHELL
IS DETARIFF
FREE MARKET
NOW OVERVIEW
PREPARE OURSLVES TO FACE THE
NEW CHALLENGE
DO IT YOURSELF
HENCE PREPARE
WORFORCE
IRDA CIRCULAR OF SEPT.05
TIME BOUND PROGRAMME
FOR PREPARATION.
1-1-07 THE START OF NEW
ERA.
‘MOTOR’ EXPECTED IN NEAR
FUTURE THEREAFTER
EXPERIENCE, RELEVANT FACTORS
WILL DIFFER REGIONWISE/
GEOGRAPHICAL ASPECTWISE
THIS WILL PLAY A VITAL/
IMPORTANT ROLE
FACTORS HAVING DIRECT
BEARING/ADVANTAGE ON MOST
APPROPRIATE PRICING VIS-À-VIS
CONDITIONS TO MAKE THE
PORTFOLIO
VIABLE/ PROFITABLE
PROFIT ANGLE SO FAR NEGLECTED
NOW TO BECOME
ESSENTIAL TOP PRIORITY
TECHNO- MARKETING CONCEPT:
e.g.
MASS MARKETING
 DISTRIBUTION CHANNEL
ALSO TO BE CONSIDERED

MARKETING
EVEN Dr. PETER DRUCKER HAD SAID
THAT
COMMERCIAL ORGANISATIONS
MUST MAKE PROFIT & HENCE
STRATEGIES TO ESSENTIALLY
INCLUDE PROFIT ANGLE
DETARIFF HAS INDIRECT BENEFIT
ALSO
 INFLUENCE OF TRANSPORT
ORGANISATIONS (WRIT PETITIONS)
 MANUFACTURERS’ LOBBY
 DEALEARS’ LOBBY
 MAY EVEN BE BROKERS’ LOBBY
WILL BECOME
IRRERELEVANT
FLEXIBILITY WILL GET
ESTABLISHED SINCE
CO.WISE
DECISIONS WILL PREVAIL
THESE ARE SOME OF THE
FEATURES OF THE REMOVAL
OF THE TARIFF
REGULATIONS
IN TARIFF REGIME
LITTLE OR NO DISCRETION TO THE
COs
IN SHORT:
TARIFF CAN BE MANAGED BY KIDS
FREE MARKET IS FOR
“ADULTS ONLY”
“ROAD MAP”
MANY GUIDING
POINTERS HAVE BEEN
MADE AVAILABLE
ANACHRONISM IN
TARIFF PRICING REGIME
WILL NOW VANISH
AND CENTRALLY ADMINISTERED
RATING REGIME
WILL GET REPLACED
BY
COMPANY-SPECIFIC RATES & TERMS
FOUNDED ON EXPERTISE AND
EXPERIENCE
CURRENT SCENARIO :INADEQUATE & LOPSIDED PRIMIUM
FLOWS &
HIGH LOSSES IN TPL & OD
FREE MARKET RATING SYSTEM WILL
REMOVE THESE IMPEDIMENTS
LEAKAGES, INFLATED CLAIMS
MANAGING CLAIMS COST MORE
EFFECTIVELY
WILL BECOME THE URGENT NEED
FOR UNDERWRITERS
DAYS OF ADMINISTERED PRICING
OVER
MARKET TO BE GIVEN FREE PLAY
WITH PROPER
REGULATORY MECHANISM
TO CONTROL DEVIATION
HENCE
FILE AND USE
SYSTEM
INEVITABLE
NO WHIMSICAL PREMIUM RATING
COS. TO JUSTIFY PRICING
& OFFER ONLY
AFTER IRDA
APPROVAL
HOW TO GO ABOUT THIS
WHOLE PROCESS OF
DETARIFF?
TWO BASIC ASPECTS:RATE STRUCTURE
&
PRODUCT DESIGN
SUGGESTIONS
RFRS:-----RISK FACTOR RATING SYSTEM
IT IS PREVAILANT IN OVERSEES MARKET.
E.G. SINGAPORE MARKET,AUSTRALIA,
CANADA, ENGLAND, GERMANY, JAPAN
ETC.
THIS SYSTEM CAN PROVIDE STATISTICALLY
BASED PRICING AS OPPOSED TO SI/ IEV/
IDV SYSTEM
CURRENENTLY EXISTING IN INDIA
EXISTING IEV/ IDV BASED PRICING
HAS BECOME OUTDATED
e.g.
COST OF ONE BUMPER OF
HIGH VALUE VEHICLE MAY
SIMPLY WIPE OUT ENTIRE
PREMIUM
RFRS GENERALLY TAKES INTO
ACCOUNT, INTER ALIA, FOLLOWING
FACTORS: VEHICLE RELATED [INCL. ACCIDENT
COST WISE]
 OWNER RELATED
 DRIVER RELATED
 USE RELATED
 CL EXPERIENCE
AT LEAST THREE OF THE ABOVE RISK
FACTORS VIZ.
1. AGE OF VEH
2. ENGINE CAPACITY
3. GEOGRAPHICAL AREA
ARE ALREADY INTRODUCED IN THE
PRESENT TARIFF
AFTER INTRODUCING MATRIX SYSTEM
IN TP
MARKET IS ALREADY ATTUNED TO
APPLYING DIFFERENTIAL RATING
FACTORS
HENCE FOR LAST 3-4 YRS. DATA SHD.
BE AVAILABLE------------------------?

VEH RELATED
MAKE/ MODEL
ENG. POWER
AGE OF VEH
CARRYING CAPACITY/ GVW
SAFETY FEATURES[SPECIALISED JOB]

REPAIR AND REPLACEMENT COSTS
1.




2 DRIVER/ OWNER RELATED
 AGE
 DRIVING EXPERIENCE
 DRIVING RECORD
 HEALTH & HABBITS
3 USE RELATED
 ANNUAL MILEAGE RUN
 GEOGRAPHICAL LOCATION
 PERSONAL, COMMERCIAL PRIVATE,
COMMERCIAL FOR HIRE
 TYPE OF GOODS TRANSPORTED
OTHER FACTORS
1. THEFT-PRONENESS OF VEH OR ITS
PARTS
2. FREQUENCY AND NATURE OF
ACCIDENTS
3. NAMED DRIVER
4.
OCCUPATION OF OWNER
5 TRAFFIC CONVICTION RECORD
6 SPECIAL DRIVING EDUCATION,
SAFETY TRAINING
7 MEMBERSHIP OF AUTOMOBILE
ASSOCIATION--------ETC.
ABOVE FACTORS ARE INDICATIVE NOT
EXAUSITIVE
------------------------------------------------------
STATISTICAL DATA ON THE
ABOVE MENTIONED FACTORS
WILL UNDOUBTEDLY HELP
ACTURIAL SCIENCE TO
FRAME THE RATE STRUCURE
HENCE STATISTICAL DATA OF
VITAL IMPORTANCE
BUT-----?
SHARING MY
EXPERIENCE WITH
YOU
ANY ONE OF THE PUBLIC SECTOR
GIANTS IS AN OCEAN OF DATA.
IN FACT EVEN COUPLE OF
REGIONS CAN PROVIDE VITAL
DATA BASE TO FORMULATE THE
RATE PATTERN
HOWEVER, WHILE THE DATA
WILL PROVIDE BASIC
CONSIDERATION FACTORS,
SHALL WE BASE OUR FUTURE
RATING ON THE CURRENT
POSITION OF THEIR
OUTGO/INC. CL. RATIOS?
IF WE DO THAT
IT WILL BE THE BIGGEST
BLUNDER
WHY?
INC. AMT/CL. OUTGO
IS
TOTALLY DISPROPORTIONATE
TO CO’S ACTUAL LIABILITY
AS PER THE PRODUCT
BOTH IN OD & LIABILITY
PROFESSIONALS &
AUTOMOBILE ACCIDENT
TECHNOLOGY SCIENCE
IDENTIFIES THIS EXCESS
OUTGO AS
INFLATED CLAIMS---LEAKAGE
CLAIMS OUTGO GOES
UNCONTROLLED DUE TO
VARIOUS REASONS, INTER
ALIA, LACK OF
SCIENTIFIC/MEHODICAL
MANAGEMENT SYSTEM
HENCE WORKING OUT RATE
PATTERN ON THIS OUTGO
WILL MEAN
UNSCIENTIFICALLY HIGHER
PREMIUM RATE
IF PROFIT ANGLE IS TO BE
THE PRIME FACTOR
IMFLATED ESTIMATES
CONTROL OVER ACCURACY
OF ASSESSMENTS
BOTH IN OD & TP
HIGHLY ESSENTIAL
WHAT IS THE CURRENT SCENARIO?
INDUSTRY EXPERTS VIEW/ RESEARCH
MY RESEARCH
EXCESS OUTGO IN OD
THIS IS ON PRESENT PRICING
WILL IT NOT MEAN THERE IS
SCOPE FOR
LOWERING CURRENT PRICE,
ALBEIT SCIENTIFICALLY?
HOW TO PREPARE FOR THE
NEW ERA
IS THE GREAT CHALLENGE
AHEAD.
CURRENT RATE PATTERN IS
LOPSIDED.
E.G.
PVT.CAR:OD:---RANGE—Rs.3.039% TO
Rs. 3.698%, HARDLY
DIFFERENCE OF 0.659%
WHILE RISK VARIATION IS
TREMENDOUS
LIABILTY PR.:Rs. 400/- TO Rs. 600/-
CROSS SUBSIDY EXISTS
COMM. VEH:- GOODS [A1]
OD:-1.726% TO 1.839%
RATE VARIATION:- 0.113%
LIABILITY:- Rs. 3280/- TO
Rs.3980
RISK VARIATION
TREMENDOUS---AND SO ON.
PLEASE REMEMBER, UNLIKE IN THE
YESTERERA, TODAY EACH MODEL OF
EVERY MANUFACTURER
IS
A DIFFERENT RISK FOR
UNDERWRITERS
PROFIT ANGLE
MOST VITAL
RISK ASSESSMENT OF EACH
MODEL TO BE CARRIED OUT
FOR
ARRIVING AT PR. RATE
MODELWISE
EXPERIENCE, EXPERTISE OF “MOTOR”
&
AUTOMOBILE ACCIDENT TECHNOLOGY
WILL BE MOST ESSENTIAL TO PRICE
THE PRODUCT BOTH IN OD & TP
[SUBJECT MATTER OF INSURANCE IS
AUTOMOBILE]
AUTO-ACCDTTECHNOLOGISTS/MOTOR
RISK MANAGERS TO
ASSESS RISK OF
INDIVIDUAL MAKE &
MODEL
E.G.
G.M.PRODUCTS---OPEL, CHEVROLET,
CORSA, SWING, TAVERA
TOYOTA—COROLLA, QUALIS, CAMRY
SKODA, MERCEDES, FORD ETC.
MITSUBISHI LANCER.
COMMERCIAL VEH
TATA 3516
ELIMINATE CROSS SUBSIDY FOR
PVT CAR– LIKE HYUNDAI ACCENT,
SONATA TETRA CAN
BALENO
FIAT– PALIO, SIENNA
HONDA—CITY, ACCORD

VOLVO
LEYLAND—HEAVY MODELS
MOTOR CYCLES—HERO HONDA,
PULSAR-----------------------------------ETC.
RISK ASSESSMENT+ ACCIDENT
REPORTING RANGE ESSENTIAL
HENCE ACCIDENT REPAIRING COST
(POST AUTOMOTIVE REPAIRS)
FOLLOWING FACTORS TO BE ASSESSED
 LABOUR CHARGES/TIME SCHEDULE &
RATE
 PAINTING COMPONENT/ TECHNOLOGY
 SPARE PART PRICING
ACCIDENT PRONE
PARTS
CLAIM PRONE
SPARE
PART PRICE
REVISION PATTERN
PML-----PAL CONCEPT
MFGS/DEALERS’ CURRENT STRATEGY
TO EARN TREMENDOUS PROFITS
THROUGH
ACCIENT REPAIRS JOBS AT THE COST
& CHAGRIN OF THE INSURANCE COs
WILL GET ELIMINATED
CURRENT LIVE AND LET DIE POLICY
WILL
GET REPLACED BY
LIVE AND LET LIVE
APPROACH
HENCE
DIALOGUE WITH
MFGS ON ALL ABOVE
MENTIONED
FACTORS.
ALSO
STUDY OF MODEL DESIGN
POSITIONAL STRUCTURE OF
ACCIDENT PRONE PARTS,
ELCTRONIC PARTS, TURBO
ETC.
TO KNOW FROM THE MFGS
THE STANDARD OF ACIDENT
REPAIRING FACILITIES AND
COMPETENCE OF THE
DEALERS
E.G. BODY PARTS,FRAMES,
AXLES ETC.
SINCE THESE ARE THE REAL
CONSIDERATION FACTORS
TO PRICE THE INDIVIDUAL
PRODUCT METHODICALLY
FOR VIABILITY
BETTER
UNDERSTANDING
WILL PREVAIL
MY VIEWS:
EACH MODELWISE RISK
ASSESSMENT IS A MUST.
BROADLY SPEAKING IN
GENERAL: SCOPE FOR 20%
REDUCTION OF PRESENT
RATING IN OD WHILE:-
LIABILITY PR. NEEDS TO BE
LOADED BY 25% --30%.
THIS IS ONLY POSSIBLE FOR
THOSE WHO WILL HAVE A
DESIRE TO MANAGE THE
PORTFOLIO SCIENTIFICALLY
IN GENERAL:_
ACCIDENT RATE IN INDIA.
CLAIM REPORTING RATE.
CONTROL & ELIMINATE THE
LEAKAGE RESULTING IN
EXCESS OUTGO.
COMPETETIVE PREMIUM-SETTING
MODEL IS EXPECTED TO ENSURE
NEITHER EXCESSIVE PRICING NOR
NON-VIABLE PREMIUM
THROUGH
UNDERCUTTING
POLICY TERMS / CONDITIONS WILL
GET
RESTRUCTURED
LANGUAGE OF FINE PRINT WILL BE
MADE
SIMPLE TO UNDERSTAND
BOTH TO INSUREDS AND
CO PERSONNEL
NEW ADD-ON COVERS TO BE
EVOLVED
MOST DOMINATING/ NEEDED IS
LOSS OF CONVEYANCE
THIS IS THE NEED OF THE
TIME
E.G.
 LOSS OF USE
 SUBSTITUTE VEH WITH OR WITHOUT DR
 CONVEYANCE EXPENCES
 LOSS OF INCOME/PROFIT THROUGH
BUSINESS INTERRUPTION
PLUS NEW INNOVATIVE IDEAS WILL
EMERGE
THIS WILL REQUIRE REPAIR TIME
SCHEDULE DATA TO BE BUILT UP
VIS-À-VIS ASSESSMENT OF THE
REPAIR TIME
FOR COMPETETIVE VIABLE
PRICING
FOR ALL THIS TO STAY AHEAD IN THE
MARKET
COS WILL HAVE TO DEVELOP
SPESIALISATION EITHER
INHOUSE
OR BY OUTSOURCING
COMPETETION WILL
BE
FIERCE
IN FREE MARKET
ONLY THOSE UNDERWRITERS
WILL EMERGE WINNERS WHO
WILL ADOPT SPECIALISED,
SCIENTIFIC CONTROL METHODS
BOTH IN OD AND TP SEGMENTS
&
ENSURE THEIR
CORPORATE GOVERNANCE
THE EXISTING LEAKAGE
WILL HAVE TO BE ELIMINATED
COS WILL HAVE TO BE
AGGRESSIVE IN THEIR
MARKETING STRATEGIES
THIS WILL POSE A REAL CHALLENGE
TO EACH CO.
THOSE WHO DO NOT ADOPT SUCH A
GOVERNANCE
WILL BE FIGHTING FOR
SURVIVAL
CHALLENGE WILL BE TO KEEP
STRICTER SCIENTIFIC CONTROL
OVER
 SURVEYORS’
PERFORMANCE
 ADVOCATES’ PERFORMANCE
CHALLENGE AHEAD IS
TO BE
PROFESSIONAL MOTOR MANAGERS
NO COMPROMISE ON THIS
ASPECT
IN THE FREE MARKET ERA,
NO SCOPE FOR CASUAL
INEFFICIENT
APPROACH OF
MANAGEMENT
OF PORTFOLIO
FOLLOW ANY PATTERN
SCIENTIFIC RISK
MANAGEMENT/ EFFECTIVE
MANAGEMENT
WILL HAVE TO BE ENFORCED
STRICTCLY WITH PRECISION
HENCE THE ONLY OPTION IS TO
EVOLVE SPECIALISED SCIENTIFIC
METHODS OF BOTH OD & LIABILITY
MANAGEMENT
AND
ENSURE ITS ENFORCEMENT
REMEMBER MOTOR IS A VERY GOOD
PORTFOLIO
PROFITABILITY DEPENDS ONLY ON
HOW
IT IS MANAGED
IN DETARIFF ERA
VIBRANT MOTOR INSURANCE
MARKET WILL
EMERGE
THANK YOU
B.G.PATKI