Germany-based ERGO Insurance Group is a leading player in the Indian insurance market through its joint venture companies. Jochen Messemer, chairman of the board of management at ERGO International AG and member of board of management at ERGO Versicherungsgruppe AG, talks to M Saraswathy about the group’s plans for India. Edited excerpts:
ERGO now has a life venture in India through Avantha ERGO Life. What are your plans for this company?
We have been a little late in this space since the earlier plans of having a venture with Hero Group did not work out. We believe we have entered at the right time, since we are comfortable with the new regulation on life insurance products. We are building the business on that and can now start from scratch.
We will have a good mix in our portfolio including about 50 per cent term life and 50 per cent unit-linked plans (Ulips). Avantha ERGO will have a focus on the agency model. It is very important to have the right people to lead the agency model. We would be interested in bank partnerships, but it is not a must for our business model. We will target metro cities as well as other smaller regions. Over the next five years, we will invest $ 50 million in the life joint venture.
Aren’t you late in this space and wouldn’t it have been easier to acquire an existing company to mark your entry?
This was an idea that was discussed in the initial stages at the board level. We looked at a couple of opportunities. These ventures were built on mechanisms that we did not like. Just buying a book of business without a good sales organisation is not a good option. We decided to rather take it from the scratch. This was despite the fact that it would take longer and be more expensive, since we had to build the entire infrastructure.
ERGO has set up an insurance hub in Singapore. Will other markets in Asia also be a target for setting up similar hubs?
We have a hub in Singapore since the market is interesting and you can operate out of this market in a free-trade zone. Apart from that, ERGO is active in Vietnam, which is an interesting market and we did a brownfield there. With Global Insurance Company, we bought the number 13 player and it is a platform we can build on. There are other markets we are looking into like Thailand, Indonesia and Malaysia.
International insurers are of the view that India’s regulatory regime is very complex and tight. What is your view?
I am not so negative, though there are some unpleasant surprises from the regulator’s side that we do not like. We like to play by the rules and want a tight regulatory regime to build a business for the long-term. It is good for the industry, since you have a sustainable industry. Although the licensing process for new insurance companies is a detailed one, that is true for other countries, too.
ERGO has a strategy to focus on central and eastern Europe and Asia. Are there expansions plans for other regions as well?
At present, there is a lot of growth opportunity in these markets. We are understanding the existing markets and we have no appetite to invest in other regions. Our focus is to manage these markets decently, rather than expand regionally.
There is a proposal to increase the foreign direct investment (FDI) limit in insurance to 49 per cent. If the law is passed, will an initial public offering (IPO) be your next step?
The FDI cap hike would be a good signal for foreign investors, since we would be able to invest more here. We are here because we want to build our business. If you have a successful joint venture in insurance and you see a need for growth that cannot be funded by existing partners, then you naturally think about an IPO. Both partners are well financed and we do not have a financing need. Hence at present, we would not ideally like to do that.
ERGO has a target of getting HDFC ERGO reach five per cent market share in India by 2018. Is it on track?
It is on track. HDFC ERGO’s profitability has improved. While there is good news, there may also be some negative developments. But we are here for good. We are broadening the base on which we are doing business in the company.