Chennai:

With the opening up of the insurance sector, ECGC''s credit insurance monopoly has gone. Other insurers like New India Assurance Company Limited, Tata AIG General Insurance Company Limited, ICICI Lombard General Insurance Company Limited and Bajaj Allianz General Insurance Company Limited have entered this arena. For them credit insurance is an ideal ''combo'' product for their corporate clients.

Still commanding a 90-per cent of the credit insurance market share Muralidharan and his team are not complacent. The 56-year old Muralidharan, the first insurance professional to head ECGC, has decided to make inroads in the competition''s turf by offering marine and transit insurance policies.

This is largely facilitated by the Insurance Regulatory and Development Authority''s (IRDA) classification of ECGC as a non-life insurer. According to Muralidharan, the company will expand its sphere of activity leveraging its client relationships.

Not only that, he plans to sew up a cooperative co-insurance arrangement with a major non-life insurer so that ECGC can offer a suite of general insurance products. Similarly the ECGC''s partner would be at liberty to offer credit insurance products to its clients.

The two insurers would share the premium income in a predetermined ratio as co-insurers of the risk. Though ECGC has National Insurance Company Limited as its corporate agent, at the latter''s branch level the awareness about credit insurance is very negligible.

Co-insurance arrangement apart, ECGC would start offering domestic credit insurance in a big way. "This is a low risk business. With prudent underwriting and with proper credit limits for the business the risks could be largely minimised. Further small and medium enterprises these days go for credit rating and banks are careful while lending," Muralidharan explains.

While this is on the domestic front, ECGC is also going global. "The idea is to have offices in the Middle East, Africa and London. The last one will serve the European Union and the reinsurers located in UK. We will recruit staff with requisite expertise for our new endeavours," says Muralidharan.

However the new plans have to get the sanction of the company''s board and shareholders, the ministry of commerce, and also the insurance regulator, IRDA.

As the buzzword in the domestic non-life insurance world is ''detariff'' resulting in downward reduction in corporate premium, is something similar happening at ECGC? "Insurance is a business of large numbers — the losses of a few spread over many. So unless the insuring base is enlarged, premium cannot be reduced. For premium reduction the majority of the exporters have to opt for credit insurance," he explains.

Adds executive director S Prabhakaran, "ECGC''s premium rates were always market determined. Compared to the competition, our rates are far lower while the policies offer wider cover without any fine print exclusions."

While the company has not revised its premium rates downwards directly, it has revised the risk rating of various countries last December, which in turn has effectively reduced the premium rates. In the case of export credit insurance, premium rate differs from country to country based on their risk profile. ECGC has upgraded several countries based on their risk profile which in turn benefits the exporters with a lower premium outgo. (Table 1: Changes in country classification)

Speaking about the new country risk-rating matrix Muralidharan says, "We have revised our country risk rating methodology (CRRM) by developing an objective scoring method."

The company revisited the factors under the following parameters: a) Economic risk rating (b) Political risk rating (c) ECGC''s experience (d) Economic and political relations with India (e) Experience of the other insurers and added certain other important criteria that has a bearing on a country''s payment capability.

A new parameter, the sixth so far, on the impact of the current developments in a country on the future has been included in the new rating matrix to make the ratings more comprehensive. "This helps us to avoid situations of over and under reacting to sovereign ratings of certain international agencies. Adequate emphasis is laid on very high growth potential countries or consideration of countries on a "national approach" towards any specific country or group of countries," explains Muralidharan.

Following the new CRRM, 14 countries have been added to ECGC''s country risk classification list. The new list includes certain islands, some of which are independent nations, while the others are dependencies or external territories of some larger countries.

"Our ratings are more liberal in comparison with other international credit insurance agencies so as to benefit Indian exporters. However, this is done without compromising the independent objective assessment of the countries," remarks Muralidharan.

More bancassurance tie-ups
Nevertheless the one perennial challenge for ECGC is not the competition but the exporters who decide to bear the risk of buyer''s insolvency, non acceptance, political, protracted default and others. Such an eventuality would have a catastrophic effect on the Indian exporter. (Table 2: Cause of loss for exporters)

It is here that ECGC expects bankers to play a major role and profit from the process. ECGC has sewed up 15 bancassurance deals and more are in the offing. "Similarly we are also working towards increasing our corporate agents."

To the question whether ECGC would like to rope in agents of other non-life insurers to sell its policies Prabhakaran says, "We will soon approach IRDA for that." For ECGC there is a precedent and IRDA''s sanction should not be difficult. The insurance regulator has permitted Star Health and Allied Insurance Company Limited to enroll existing non-life agents to sell its health insurance products on the ground that it is a specialised institution.

Meanwhile the company closed FY 07 with a premium income of around Rs620 crore (flash figure) and a claims outgo of around Rs358 crore as against the previous fiscal''s figures Rs578 crore and Rs386 crore respectively. The recoveries from guarantees given and others amount to around Rs132 crore. The income from investments will be in the region of Rs200 crore on a portfolio of Rs3,000 crore. The directions of ministry of commerce govern ECGC''s investment decisions, and the bulk of the investments are in bank fixed deposits.

Finding a reinsurer for its risks is one big issue for ECGC. "We reinsure with General Insurance Corporation of India (GIC) and New India Assurance. But that is very minimal as we retain 99 per cent of our premium and the risk," says Muralidharan. Unlike a couple of other non-life insurers, the solvency position of ECGC, which has a Rs800 crore-equity base is also very comfortable.

Looking at ECGC''s plan it is clear insurers face interesting times ahead. And only time will tell whether the company would achieve Rs1,000-crore premium target in four years..