April 2005
CORPORATE FOCUS

Shikhar Insurance
Coming Up With INNOVATIVE POLICIES

Shikhar Insurance Company Ltd., the latest entrant in the general insurance business of the country, was able to transact over Rs. 100 million in its first four months of operation and is coming up with some innovative new products in order to take on the competition in the already crowded market of over 15 players, according to company sources.

Pandey : Focus on developing professionalism

The general insurance sector of the country had collected about Rs. 2,690 million as gross premium in the year 2003-04, according to a preliminary estimate by the Insurance Board.

Among the new products (some of them improvements in those already available in the market) being developed by Shikhar Insurance, are loan care policy, hospitalisation plans with third party administrator (TPA), flight coupon and extended warranty.

The loan care policy promises to compensate the bank when the borrower dies or becomes incapable of repaying the loan due to deaths (both natural and accidental), physical disability or due to critical illness. A similar insurance scheme is already available in India and it is operating successfully there, according to Dip Prakash Panday, the General Manager of the company, who hopes for a similar success of the scheme in Nepal too.

The flight coupon policy will be different from the existing flight insurance scheme in that the insured sum would be higher than what is normally available and this policy will be accepted and sold in more consumer friendly ways. The passengers can buy this policy along with the ticket whereas in the existing practice such a policy is available only at the airport before embarkation. ‘This will make our policy more attractive to the passengers,’ says Panday.

The TPA system is a totally new concept in Nepal . Though hospitalisation schemes are already available in the market, under them the insured has to bear all the hospital expenses and then claim reimbursement from the insurance company. This involves a number of hassles in preparing and presenting documents. In the new product being developed by Shikhar Insurance, there will be no need to make immediate cash payments for the treatment as the TPA will bear all the hospital expenses of the insured to the extent covered by the insurance policy. For this purpose, the insured will be provided a special card by the Insurance Company. When the insured presents the card, the hospital will immediately notify the TPA, which immediately makes the assessment and takes up the liability of the expenses covered by the policy so that the hospital can go ahead with the treatment and get the payment from TPA. Thus the insured need not make immediate cash payments to the hospital for these expenses. The TPA also functions as a surveyor in property insurance policies.

This will also help control the problem of moral hazards faced frequently in medical schemes, hopes Panday. With a specialist agency called TPA monitoring the hospital expenses, the present practice of presenting fake bills to the insurance company will be avoided.

Another product being developed by Shikhar Insurance is extended warranty on consumer durables. For example, if one buys a TV set with a three year warranty from the manufacturer, the warranty will be extended further if the buyer takes this policy while making the purchase.

‘We hope that these policies will be widely accepted as they will also help in the marketing of the banks, hospitals and airlines which tie up with us under these schemes,’ says Panday.

The company at present is operating from its head office in Kathmandu , but is going to open branches in Birganj, Bhairahawa, Pokhara and Biratnagar soon. The permission for this has already been granted by the Insurance Board, it is learnt.

Corporate Strategy

As there were 14 insurance companies already selling general insurance policies in the country, some observers viewed that the market was already overcrowded. Therefore when Shikhar Insurance started business last November, they were sceptic about the company’s future. But Panday and his management team were aware about those concerns and went for a different corporate strategy, differentiating the company from the crowd.

One such difference is, of course, the capital base of the company. With Rs. 125 million as the paid up capital, it is the largest private sector general insurance company in the country in terms of the capital base.

The existing insurance market is dominated by such marketing activities whereby the companies are struggling for a larger share from the same market. The problem was compounded because of the small size of the market and the lack of expansion in economic activities during recent years. In such a situation, the customers were becoming price conscious and the companies were forced to opt for cut-throat competition. While the consumer was benefiting from such competition in terms of the premium they had to pay, complaints of unethical practices by the companies or their agents were frequently coming to the surface. If such practices continue, it will certainly hamper the insurance business in the long run, view the observers.

One reason for this practice is insufficient client education. As Khem Prasad Baral, General Manager, Reinsurance and Claims of Shikhar Insurance says, people just take the policy which incurs them lower premium outflow, without being aware about what risks are covered and what the terms and conditions are. When such a client faces damage, the company refuses to pay the compensation because of one or another condition of the policy. As a result, the client develops negative attitude towards the insurance business as a whole.

‘At Shikhar Insurance, we are concentrating on strategies to avoid such anomalies,’ adds Baral.

For this, Baral claims that the company has developed staff professionalism by providing continuous training. ‘There is a training session on every working day at the head office after four o’clock and every Sunday there is a feedback session in which all the staff participate. The management takes up the issues gathered from such sessions to the company board, the government or the Insurance Board for a solution,’ he adds.

With regards to generating sufficient premium to make the business viable, the company has come up with the slogan “Rs. 100 million premium in 100 working days.” And the achievement of the first four months of operation has been as per the slogan, informs Panday and says that this should give the clients an assurance that despite being a new company, Shikhar is able to garner enough business and it is safe to get insured with this company. Similarly, it also assures the staff about the company’s future.

Panday and his management team being experienced in the insurance business of the country with support from the promoters, who belong to the higher strata of the country’s business community (see box), have already set up a robust reinsurance support system by tying up with world-renowned reinsurance and broker firms. The most recent development is the deployment of MIS software from ICICI Infotech, which will help in better serving the customers. With the new software installed, some services of the company will also be available online, giving the company an extra edge.

Organisation Management

The Nepali insurance business is suffering due to the lack of qualified people trained to handle different fields of the business. As may be recalled, most of the private sector insurance companies got their qualified staff from among those who retired from the Rastriya Beema Sansthan, the Oriental Insurance Company and the National Insurance Company. But this source has now been exhausted and companies may be found poaching staff from each other. Many companies are managing with a single trained person in charge of all the key activities such as underwriting, reinsurance, claims, finance and administration. There is a big gap between the top and the lower layers of the company management. While there may be a couple of qualified and experienced people at the top management, there are generalists and inexperienced people in the lower levels. Therefore when one of the qualified persons leaves the job for some reasons, the company will have to face a crisis. This is one of the reasons why professionalism is still lacking in Nepal ’s insurance sector.

‘We have taken special measures to avoid that problem,’ says Panday and cites the emphasis on training as one example. The company has 35 people including five department heads at present, and it did not have to poach anyone from other companies.