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Insurance business – Not for everyone and his uncle - Views on News from Equitymaster
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  • Jul 30, 2001

    Insurance business – Not for everyone and his uncle

    Over the past few days we have read about a leading consumer durables company talking of an insurance venture, a leading auto company is thinking about it very seriously and now a leading software company has firmed up plans for an insurance tie-up.

    Are we talking insurance here or something else? Insurance is the only common thread that links all the companies that we have outlined above – apart from insurance they have very little in common.

    Sample the kind of companies that are/were looking at insurance as a business venture. Newspaper reports reveal that the Videocon, which was contemplating insurance seriously has dropped its plans for the time being. Videocon is a leading consumer durables company in the country today but does that qualify it for an insurance venture?

    Bajaj Auto, a leading manufacturer of two-wheelers has firmed up plans for an insurance foray. There is little doubt that Bajaj Auto is one of the most successful companies in India today with a large cash reserve and has even talked of setting up an asset management company in the past, but all this still does not make insurance seem like a natural extension. The Hero group, parent of Hero Honda – Bajaj Auto’s number one nemesis, has similarly finalised its insurance venture.

    With old economy companies finalising tie-ups, why should new economy companies be left behind? News reports in today’s papers reveal that Satyam Computers is also hooked with the idea of selling insurance and plans a foray.

    Among the current crop of Indian companies that have already got an insurance licence, we have Max that was into telecom and got a fat cheque for exiting its venture with Hutchinson. The other interests of the group include pharma and healthcare, hardly synergistic with insurance.

    The main argument of these companies for entering insurance is their knowledge and understanding of the Indian consumer’s mindset. However, this argument defies logic. No way is selling a two-wheeler, computer software, washing machine and refrigerator similar to selling a life insurance policy. Life insurance is a sophisticated financial product that is bought after much deliberation and it fulfills a basic need of providing security. It is not the same as inspecting a vehicle or a television or a refrigerator in a showroom and making an impulsive choice based on the colour and/or some sexy features.

    Moreover, why are these companies only talking of insurance now? The potential, synergies, etc. were there even earlier. Their plans should have been sounded out to investors and consumers much earlier. The Housing Development Finance Corporation (HDFC) began talking to Standard Life of UK five years before finalising the venture and announcing their range of products. That shows a lot of credibility and commitment on the part of both companies.

    Another point that must be highlighted is that its not just the Indian companies that are to be faulted. If a New York Life or a Metlife is really serious about its insurance prospects then they should be looking out for Indian companies that have a credible and committed record in investment and finance bearing definite synergies with the insurance business.

    As far as consumers are concerned they must stick with best. The best means companies with strong financials, loads of credibility, commitment and trust, experience in investment and finance, strong track record in servicing consumers and delivering on promises. At the end of the day, remember you are looking for an insurance policy, not some fantastic washing machine or motorcycle.



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