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The Rediff Business Interview / Derek Stott, Brian Arrighi

'The fear of an open insurance market is the fear of the unknown. I call it the Hindustan Ambassador Syndrome'

UK-based Prudential Corporation Plc with its tie-up with ICICI is all set to take on the Indian insurance market once it is opened to private companies. The 150-year-old company with over $250 million worth of assets is the largest insurer in the UK and has operations in the United States too. Prudential has been providing its services in nine Asian countries for the last 70 years. Derek Stott, chief representative and Brian Arrighi, head of group policy development, have big hopes from the Indian market. They spoke to Neena Haridas in New Delhi.

You have signed a memorandum of understanding with ICICI floating an asset management company. Will you extend this agreement to your insurance company too?

Stott: We signed the MoU with ICICI in 1997 and floated the asset management company. We will extend this tie-up to a joint venture when we enter the insurance market. Prudential and ICICI would subscribe fully to the respective 26 per cent and 74 per cent share, leaving no scope for a third partner.

Will you be paying a premium to ICICI on your 26 per cent stake for the local knowledge and reach that it will provide you?

Stott: This is not a topic being discussed. You see, both the partners benefit equally and there is no question of payment of any premium. The company will be floated with a paid up capital of over Rs 100 crore in order to get a national coverage.

What are the products that you will offer once you start doing business in India?

Sttot: Well, our core speciality is life insurance and pension funds. And of course asset management. We will focus in these areas. In the UK we have non-life insurance products too, but we will not bring these products to India now.

What is your reading of the Indian market?

Arrighi: Well, since it is not an open market, there is a lot to be done here. I think when the market opens up and more players come in and competition increases the quality and quantity of service will improve. The market will evolve giving the consumers and the insurers better choices.

Since you have special interest in the pension market, can you tell us what are the possibilities that you see in India?

Arrighi: Most countries are experiencing demographic changes which will cause them problems unless they take steps to introduce an appropriate pension regime to stimulate more effective retirement provision. India is no different. There are a few schemes available from the public sector but they are few.

Pension reform in India has a number of things in its favour. First, there is a significant degree of political consensus on the need for change. Two, it has an existing regulatory regime for its insurance business and experience of a local pension system. And above all a lot of foreign companies want to set shop in India. I see a lot of potential in pension.

Considering that a large population is unemployed how will the pension schemes work here?

Arrighi: Yes, there is a large population in India that is not conventionally employed. Less than 15 per cent of Indian population is salaried and 85 per cent self-employed. I think the companies will be able to work out schemes that work for both the salaried and the self-employed, but of course in accordance with whatever regulations are laid down.

Are you really happy with the 26 per cent cap that the regulator has fixed?

Stott: If that is what the regulator thinks is best for the country at the given point of time, there is no argument. Though multinationals would like to have a bigger stake, I think this is the starting point and I am glad that a consensus has been arrived at. Life insurance and pensions are long-term products...companies entering the market today are here for the long term and this is a good starting point.

Are you open to the idea of ICICI having tie-ups with other MNCs in non-life insurance sector?

Sttot: Well, ICICI has stated that it is not interested in general insurance.

What do you think of the rural market in India?

Stott: It is huge potential market. But first there is a need to increase awareness in the rural areas and then tap them with products that are best suited for them. For instance, a large rural population is depended on agriculture for a living, hence products tailored to their needs should he presented to them.

What is the segment that you are targeting?

Stott: We will have products for all socio-economic categories. Our products will be tailored to suit the economic conditions of the consumer.

Do you think that with the entry of so many players, the price of products will fall?

Stott: Well, price is not the only factor that gets affected with increased competition. More the players the better the competition and better the quality of service. I think more than prices, the entire insurance sector will be professionalised and the services will improve in both quality and quantity. May be the prices will be rationalised too.

How long do you think it will take for India to reach the level of the US or the UK?

Arrighi: That's tough to forecast. But I think the market will evolve slowly. I also think a market like the US is not a role-model. There are so many players in the US that there is too much choice for the consumer. And when there is too much choice, the best alternative is to choose none.

Most of the players that have expressed interest in India seem to be skewed toward life insurance. Is there is a reason for overlooking non-life insurance?

Stott: I don't really think companies are overlooking non-life insurance. But yes there is more interest in life insurance because it is a long-term returns area and it is obviously a huge market.

What do you think the companies entering India will focus on - innovative products or marketing expertise?

Stott: I think to begin with companies will try to bring the basic products here and build a relationship with the consumers. For innovative products to work, the market needs to evolve. Hence, the focus should be more in brand building and relationship marketing. Innovations can come later.

Mr Stott, being a marketing person how will you sell the idea of open insurance market to the trade unions and Leftists who are today up in arms against it?

Stott: I think it is a case of the fear of the unknown. I call it the 'Hindustan Ambassador Syndrome' - people bought the Ambassador and thought it was the best till they saw new cars after the market opened up. I think a similar thing will happen in the insurance sector too.

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