ICICI Lombard scaled down motor, fire insurance coverage over pricing pressure: CFO Gopal Balachandran

How do you assess the company’s performance in Q1 FY26?

The general insurance market has historically operated with elevated combined ratios at around 113 percent currently, similar to when tariffs were deregulated 17 years ago. Our strategy has always been counter-cyclical. While the industry has compounded its topline at about 15 percent over the last 17 years, we have grown at 13 percent. Some might see this as underperformance, but we’ve made conscious calls across segments based on underwriting profitability. In Q1 FY26, the industry likely grew in single digits. We recorded 0.6 percent growth, but that was intentional. In some segments, we gained market share and in others, we held steady or exited. The idea is always to write business that meets our profitability filters.

The motor segment has been under pressure. What led to the de-growth, especially in commercial vehicles? Was that a conscious decision too?

Yes, the de-growth in motor, particularly in the commercial vehicle (CV) segment, was a conscious decision. Motor comprises two parts, which are own damage and third-party. While own damage can be priced freely, third-party premiums are regulated. For 4–5 years, there has been no meaningful price change, except for a minor increase in one year. Back in 2017–2019, when there were annual hikes of 20 percent in third-party premiums, our CV mix rose from 17–18 percent to 23–24 percent. But with no changes recently, we had to recalibrate. Today, CV is back in the early 20s as a share of our motor book. If there’s no price support, growing that segment doesn’t make financial sense.

Where, then, is motor growth coming from?

There’s still growth, but it’s just more balanced. We rely on both new vehicle sales and renewals. While new vehicle demand has been somewhat muted in the first half, we’re optimistic that it will pick up. More importantly, we’ve made renewals a strategic priority. These are our existing customers, and there’s no reason to lose them. Over the last couple of years, we’ve completely overhauled how we engage with customers, resulting in a 2-4 percent improvement in retention rates across retail segments. This has directly contributed to growth in Q1.

Retail health insurance grew strongly by 32 percent. But loss ratios also rose. Is that a concern?

Yes, loss ratios did inch up to 74 percent, compared to 72 percent in Q1 last year. However, this is not unexpected. Last year too, we had called out increased incidence of claims in Q1. We operate comfortably within a 65–70 percent loss ratio range, and FY25 ended at 68 percent. Q2 typically sees higher claims due to monsoon-related ailments, so we’ll watch how Q3 and Q4 play out. But we’re confident the quality of our health book will keep us within range. We’re also seeing claims inflation, which is an industry-wide concern. The general insurance industry is working on initiatives like educating customers about home-based care, encouraging second opinions, and reducing unnecessary hospitalisations. These help bring down claims cost.

Have pricing pressures in commercial insurance segments like property and fire affected your business?

Yes. We saw pricing stress in early FY25, especially in fire. That segment, which rarely de-grows, did last year. We also lost some market share. But we took a guarded stance, and we don’t write business unless it meets our underwriting filters. The good news is, in April renewals (which most corporates follow), fire segment growth rebounded to 17 percent. So we’re now turning positive on commercial lines again.

You mentioned pricing pressure in motor. Do you think regulatory enforcement of expense of management (EOM) guidelines could help correct some of the distortions in the market?

Yes, absolutely. This is the third year of the glide path for EOM compliance, and if you look at the numbers published by PIS, nearly 50 percent of players are still outside the threshold. Last year, the regulator issued show-cause notices to those companies and began asking for quarterly plans on how they will bring expenses in line. Boards are now being held accountable. So our optimism comes from the hope that enforcement will intensify, and that’s positive for the market. In general, the regulator has been very focused on the cost of distribution, and if companies are forced to comply, it could correct some of the irrational pricing behavior we’re seeing today. For players like us who’ve stayed within the EOM limits, it helps level the playing field.

Why has your crop insurance exposure declined so much?

If you go back to 2016-17, when PMFBY was introduced, we took large clusters and crop made up up to 17 percent of our mix. But this is a tender-driven business, lowest quote wins, regardless of risk. Eventually, pricing didn’t justify the risk. We also had to rely heavily on reinsurance, and exposure to high-risk areas (coastal zones, rain-fed crops) wasn’t always avoidable. So we brought our exposure down to zero in some years. Today, it’s under 5 percent, and we only write crop insurance when the risk-reward equation works for us.

Has the industry reached out to the regulator over data accessibility challenges?

There’s been some talk, but honestly, the Insurance Information Bureau (IIB) has done a good job, especially in motor. Currently, the accuracy of submissions from insurers is above 94 percent. The issue isn’t the availability of data but how well companies leverage that data. On health and commercial lines, it will take another 3-4 quarters for similar improvement. Earlier, general insurance lacked KYC norms, which impacted the richness of customer information. That changed in January 2023, and over time, the data quality will only improve. We’re already seeing benefits. For example, earlier, No Claim Bonus misreporting led to revenue losses. Today, via IIB, we can verify this real-time and price the policy accordingly.

EVs are growing rapidly. Does that pose new risks for insurers?

We’ve actually become a very large player in EV insurance. As of March 31, 2025, ICICI Lombard has a market share of approximately 23.9 percent in private electric cars and 32.2 percent in electric two-wheelers. That said, EVs bring new risk profiles. Initially, like any new vehicle model, we lack claims experience, which could lead to pricing mismatches. But that’s the advantage of being in a short-tenure product business, you can correct pricing in a year. Globally, some Asian markets have seen higher loss ratios in EV third-party claims, though India hasn’t yet. Right now, most EVs are intra-city, and infrastructure is still developing, so that naturally limits risk.

Are you talking to Tesla about insuring their EVs?

I can't comment on that but we want to be entrenched with pretty much every OEM, whether in private cars or two-wheelers. Because we do not know today which of these OEMs will eventually become meaningfully large players in India. So we ensure that our revenue is fairly distributed.