"We have felt least imp act from the global financial crisis’’
M. Ramadoss, Chairman-cum-Managing Director of The Oriental Insurance Company Ltd., headquartered at New Delhi having its operations in Nepal, Kuwait and Dubai with around 16,000 employees and gross premium collection standing at whopping Indian Rs 40.2 billion during 2006/2007, was recently in Kathmandu to review the existing situation and to strengthen the company’s Nepal operations. Excerpts from an interview:
What is the purpose of the recent Nepal visit?
Nepal is going to usher into a new era with the end of insurgency and the change of political scenario. There is a government in place to run the Federal Democratic Republic of Nepal. Better environment for foreign investment, growth of industries and hydropower project which is the focus area now will throw open many opportunities. Insurance industry is likely to grow, hence my objective is to review the existing situation and to strengthen our company’s Nepal operation to effectively serve the clients.
How do you assess the non-life insurance industry of Nepal?
It is picking up gradually. I understand it has grown by 5.56 percent last year and this pace is going to be maintained this year too. This growth seems to be quite impressive and our company registered a growth of 11.20 percent during the last Nepali fiscal year – i.e. at par with the market growth rate which also stood at 11 percent. With greater inflow of foreign investment and industrialization, insurance sector is going to play an important role in providing security. Being one of the oldest insurance service providers in Nepal, we have been posting healthy growth records. We have recently set up single-man offices called ‘inspector offices’ with the purpose of upgrading them to the branches here. We are taking it seriously and making long-range arrangements to set up a company here so that we are able to tap the market adequately.
The Insurance Regulatory and Development Authority (IRDA) has detariffed almost every segments of insurance in India. Having insight over the pros and cons of detariffing, what do you suggest to the Insurance Board of Nepal?
We understand that the major insurance products like fire insurance, marine insurance and motor insurance are tariffed today in Nepal. Even in India these were tariffed for long time and it was eased only from January 1, 2007. I feel the market in India was a bit worried concerning the aftermaths of detariffing. Stakeholders started panicking over the prospects of rates getting destabilized and its possible impact on the whole economy. Fortunately, we did very well and it was a very smooth transition to detariffing. I personally feel that insurance companies in Nepal should also enjoy the benefits of detariffing. The market should, on its course, determine the premium rates. With this, I think consumers will be benefited the most and even the prices will slowly start to stabilize over the period.
Do you think that detariffing insurance in Nepal would bring about the same results as in India?
The regulatory body Beema Samiti (Insurance Board) of Nepal is serious about detariffing. They are already talking of detariffing marine insurance. What I am insisting on is its quicker implementation. In India too, nothing was detariffed for long but all of a sudden, fire, motor and engineering insurance, which occupied 30 percent of the market, was detariffed at once. So, if Insurance Board of Nepal wants to adopt the idea of detariffing, it must do it at the earliest, within the next 2-3 years. If the Board is concerned about how to make effective regulation after detriffing, it’s better to increase the minimum capital requirement of an insurance company to Rs 100 million for a certain period so that only serious players enter the market. Subject to those changes and regulations, more important thing is to have a liberalised pricing policy as you grow.
What threats do you see to the insurance companies from the current global economic meltdown?
Insurance companies have a large stake in the Indian stock market having foreign branches and foreign investment as well. But one important good feature of Indian insurance industry is that we are prohibited from investing in derivative market. While we invest money in vanilla products like stock and debentures, they should belong minimum to the A-rated ventures. Similarly as far as reinsurance is concerned, we are supposed to reinsure only with the BBB-rated company as per the regulation.
There is no need for a great worry because the sub-prime lending problems haven’t affected us due to our low exposure to the US market. In fact all our treaties have excluded us from doing any business with the US. We compare ourselves with European market and there isn’t any direct effect as such. Fortunately, being one of the government-owned insurance companies of India, this financial crisis has not affected our company.
But the crisis has struck the financial market intensely. How can you be spared?
It hasn’t affected us so much, though big banks like ICICI and State Bank of India, which have large number of foreign branches, have been inflicted a mild blow. But a good thing is that they all have certified that their exposure is not so deep into foreign market that can lead us to dismal aftermaths. Reserve Bank of India has even quantified the amount of loss and has stated that it’s not been very high. I don’t think it will be a big problem for us.
Here we don’t have products like crop insurance. Don’t you think that it has a big scope in Nepal as well?
As far as agriculture insurance is concerned, even in India it is being done at macro-level. There is poor public awareness about it. But there are other products covering the risk of farmers. We have introduced a policy called “Varsha Bima Policy” which is an insurance scheme against deficient rainfall. As per the scheme, if rainfall in a particular district is less than normal, the compensation will be made on the basis of per hectare arable land. The scheme covers the amount of Indian Rs 100,000. And a farmer doesn’t need to prove anything regarding his harvest, sales or loss incurred. This is a policy which I won’t say is selling very well but obviously is accepted in the market.
Apart from that, the agricultural crop failure is also covered by Government of India and State government through the means of giving subsidies to farmers who are burdened with loans. Likewise we also have devised plantation policy for providing coverage to farmers engaged in the production of commercial crops like apple, rubber and sugarcane against loss or damage caused due to cyclones, floods, landslides, fires, storms etc. These are the areas that can be marketed very well. I don’t think the regulator will have any problem with it because it is a non-tariffed item. You can devise your policy, present it to the regulator and bring it to the market. And the fact is that the regulators are very serious about it as they are trying to sell micro-insurance products.
Your company’s branch here has been talking of entering into deal with commercial banks for corporate agency. Have you started anything on that?
We are in talks with Nepal SBI Bank and we are giving it a thought to setting up arrangements with other commercial banks for corporate agency. Approaching banks with good track records would be our major concern for now. We have already diversified our investment portfolio and with that, we are looking for assurance of business reciprocity rather than going all over on return on investment and that is how we have put up our money in more banks. In fact we are going to approach them with corporate agency proposals as well because banks are institutions that have larger access to rural areas.
"It's possible to do social work and make money"
Vestergaard Frandsen, s tarted as a small family-owned business in Denmark in 1957, has grown into a global social enterprise as a leading innovator, manufacturer and exporter of complex emergency response and disease control textiles. It has won several prestigious international awards for its innovative health products. Neeraj Jain, Regional Retail Head-Asia, Vestergaard Frandsen India Pvt. Ltd. was recently in Kathmandu to launch two of its products-PermaNet, a long-lasting insecticide-treated net, ideal protection from diseases like Malaria and LifeStraw, a filtering device that purifies water, ideal for personal and family use. He talked to New Business Age about the products, their awareness plans and social entrepreneurship. Excerpts from the interview:
Is this your first visit to Nepal?
I have been to Nepal a number of times. This particular trip is to actually launch the Vestergaard Frandsen products in Nepal. The products include two ranges—one is PermaNet, which is an insecticide-treated net in the form of a curtain as well as in the form of a mosquito net. The second is LifeStraw, which is a water purifier, a water filter where we have a personal as well as a family version. So these are the four products that we have launched in Nepal. In case of LifeStraw, the basic operation is of textile filter as a filtration device, which is able to hold back bacteria, viruses and all kinds of contaminants to produce safe drinking water.
So your company must have been investing a lot into research and development to come up with award winning products. Can you offer us a glimpse into how you people manage to do all that?
Our company is completely R&D-oriented. Our objective is to make a difference in the world in terms of health and social impact. We in fact spend a lot of money into research and development where we come up with products which have been getting awards. But more importantly than getting awards, we have been saving lives across the world. In Asia, we have been selling our products in countries like India, Bangladesh, Pakistan, Cambodia, Laos, Thailand, Vietnam and Papua New Guinea.
So what’s the market volume across your operating regions in financial terms?
I wouldn’t be able to give you dollar number but I can tell you that the company sells about 5 million nets every month (the price of a net is most likely to be between NRs 800 to 1,000). So that’s probably a huge business volume to be mentioned. And then the water purifier and etc on top of that, it’s very fabulous business of the company. Our products are targeted at the lower end of the segment, so we try and make sure that our products are affordable to them. Of course because of the R&D and high technological involvement, pricing is the challenge but our focus is always on keeping the prices low and making sure that we are able to make our products available to the poorest of the poor, the bottom of the pyramid as they say.
You invest so much in R&D and then you make it affordable. How do you manage to make it a profitable venture then?
See this is what social entrepreneurship is all about. There is a myth that you can’t make money from social work and you can’t do social work and make money. I think businesses are now evolving. Even those making a lot of money are involved in CSR (Corporate Social Responsibility) activities. Companies across the world are getting more and more responsible. We are not an NGO. We are a private company. But you can always make smaller progress, make a large impact and still survive. And that’s what we have been trying to do.
Prevention of diseases lies in public awareness which is pretty low in case of Nepal. How do you plan to educate the rural people about your products?
Our business is actually not about selling a product—it’s about awareness, it’s about health education. Once we are able to give health education, our products will automatically sell. So our focus is always going to be health education and target areas be rural where the poorest of the poor live. When we set up our distribution channel, we also set it up in the same way. Our distributor has sub-distributors in about 50 districts in Nepal. Our importer already has this distribution structure. So immediately after we plug the products through those channels, they reach their target clients. We conducted a whole day training session for our network of 150 sub-distributors and retailers who all came to Kathmandu from all over Nepal where we trained them on our products. We actually gave them health education. We gave them the tools to go out and further educate the rural people. One of the things that they have promised me is that they will talk about our products to 100 new people every month.
What do you see as opportunities and challenges for plugging through your products into Nepal?
I think the government is doing just enough to promote health education in Nepal and now it’s time for the private sector to do their bit. But what the government can do is look into the import duty, which is about 30 percent, a challenge for us targeting the lower end of the segment. I think it’s time for the private sector to join the initiative because if you are able to ensure good health, the economy will fall into place automatically.
What does your global experience suggest in case of promoting health education in rural areas?
I think as urban dwellers, we don’t really listen to advertising, communication, education. We think we know everything. But when you go to rural areas, people are so receptive. Whatever you tell them, they will listen to you. And if you are able to sensibly explain them what the health problems are, what the sanitation issues are, what hygiene issues are, what kind of vectors there are, then they will make the necessary changes around them and in their lifestyle. Again, I think if all the private organisations do their bit in education and help the government to make a larger impact, it will be a different story altogether. So I think the private companies need to get up and say, “We are here. Let’s do it together!” A very important thought process, if you look at the malaria and poverty map of the world together, they look exactly the same. So it’s a vicious cycle. We are developing countries and we need to get out of diseases like malaria to cut down their economical impact.
What sort of promotional tools and activities will you be employing to make it all possible?
We will start up with literature, reading stuff. We will be doing demos. We say radio and television but I am wondering how many rural people actually listen to radio or watch television. So that’s one of the things that’s a big challenge—we need to reach these clients and they need to know about these products. The challenge is actually to have somebody walk up into a village and talk to the villagers. So, like I said, I talked to 150 people in the workshop that we held and if they talk to 100 each, we will have 15,000 people all of a sudden every month. So if this multiplication happens and if they will be able to spread the message, it can go very far.
What was your selection mechanism in terms of local distributors? They need to be some sort of educators as well, don’t they?
For us, the most important thing is—do these people share our vision, emotions and purpose? And if they do, they are absolutely welcome. I have found our Nepali distributors receptive and enthusiastic. I am just overwhelmed.
Will you be brining more products here?
Vestergaard family is constantly working on new developments. You will definitely see more products coming out of our table. But again, we don’t know when and what that product will be. We have a large R&D team which continuously does crazy things. One of the most important term that we use internally is ‘imagineering’—think of anything, it doesn’t matter as long as you have a health impact and you are making an impact on some of the largest and worst possible diseases, which are easily preventable.
So are these products for developing or under-developed nations? Do you have anything for the developed nations that have no such thing like malaria or diarrhoea?
That’s an interesting question. I think you are aware that environmentally, using water out of a plastic bottle is one of the worst things that you can have. I remember reading an article some years back about the Everest Base Camp turning into a plastic bottle dump. So what we are now doing is launching our products for the travellers or for the adventurers. For mountaineers, carrying water bottles is a condition, whether in case of going up or coming down. So we are messing up nice environment. We will be launching our LifeStraw in high-end consumer markets like Switzerland, the UK, Japan, Australia, New Zealand and wherever the adventurers are. We are going to tell them—‘don’t use bottled water’, use LifeStraw whenever and wherever you need to drink water and you will be safe.
