Koushik Gopinath, Chief Investment Officer, Tata AIG General Insurance, illustrates how IT has been instrumental in helping keep the value of the company’s investment portfolio competitive. CIO: Given the global economic downturn, what’s the last few years been like for the investment function?Koushik:
The growth of our business is related directly to the growth of the country’s economy. For example, our motor insurance business is directly impacted by the way the automobile industry performs. We are also affected by the rising cost of healthcare; for us it’s an opportunity to increase our health insurance business. The investment function plays a very key role whenever a cyclical downturn in the economy occurs. The investment portfolio is expected to absorb a lot of the shocks that a company faces during an economic downturn. The management of these investments becomes very critical because we have to provide a lot of liquidity to the company. Say, for instance, there is a series of very large claims, the investment team has to ensure that there is sufficient funds in liquid assets to make payments. In the same breath, we also have to ensure that funds are invested in instruments that will give periodic returns to the investment portfolio. That’s the essence of investment management within the company.
In the next financial year, our focus is to continue to engage with the business to ensure that funds are invested so that we are in a position to fulfill all our obligations to policy holders. At the same time, we strive to invest surplus funds in high-yield, fixed-income instruments—without compromising the credit quality of the portfolio—so that our returns are on par with industry returns.
What stands in the way of these goals?
The challenges are numerous. The biggest among them, from an investment perspective, is the volatility of the financial markets, especially over the next few months, due to the general elections. This volatility has a direct impact on our portfolio valuations. The second large challenge is portfolio growth. We are confident that the worst is over for the economy, and that a stable government can provide that much-needed impetus for growth.
That said, we have faced these challenges in the past—and we have overcome them. We are well-prepared to face these challenges again in the coming months. In a crowded industry, how is your company increasing its edge over rivals?
First, I think competition is very important because it encourages innovation. Competition ensures that the focus remains on customer satisfaction. Going forward, we shall continue to focus on three things. The first is innovation. We will keep innovating with new products and services. The second is to continuously improve our claims service, despite the fact that we have already established a high standard. And, finally, we aim to enrich every customer’s experience. For this, we are hugely dependent on IT. We want to revolutionize customer experience through IT-driven initiatives, and therein lies our competitive edge.
Can you give us some examples?
We implemented SAP six months ago, and it has transformed our internal processes. It also increased the speed at which we process all payments substantially. IT initiatives, such as this, have improved efficiency and enriched customer experience.
We are also in the process of replacing our core insurance application. Today, investments are managed completely using an IT system. The investment IT setup has revolutionized the way investments are managed. Today, limits are monitored by systems, investment returns are generated by systems, and accounting entries are generated by systems. And because these are system-driven, everything takes place at a much faster pace. The transition from Excel sheets to IT system has ensured minimum manual intervention, thus resulting in error-free transactions.
Your company has increased IT investments. What do you expect out of IT?
We live in an era where speed is of the essence, and customer needs are more challenging to meet. The needs and requirements of customers change on a day-to-day basis. To fulfill these customer demands, you need a robust IT setup. The setup should be able to adapt to the dynamic changes happening on the technology front. Among the most visible areas where IT has created such a transformation is banking. You have to agree that footfalls in branches have lowered significantly because customers can transact online. That’s where IT plays a key role. For us, we are very focused on having a robust IT infrastructure in place, which will encompass all departments along with customer interactions. We are also engaging in social media; we’re using Facebook to address customer complaints. Access to online transactions definitely helps create more customer awareness.
Could analytics help mitigate the unpredictability your function faces?
We use the Reuters EIKON for all our investment analytics and data. Reuters provides us with news that directly impacts our investment portfolio. It helps make quick and informed decisions. It also has various valuation models that are built into the system. We use this information for peer comparison and the results have been very encouraging.
Should IRDA relax some regulations, to allow more IT-led efficiency, like using the cloud?
I want to address the investment regulation part of the question first. From an investment perspective, we firmly believe in a regulated market. India has been insulated from global shocks primarily because we have well thought-out regulations. If you look at the financial market crisis in 2008, though we did face some market volatility, it was miniscule compared to what the US went through. IRDA, our industry’s regulatory authority, has ensured that investments are well regulated thus ensuring policyholder protection at all times.IRDA also ensures frequent interaction between the industry and itself and industry feedback is considered whenever regulations are formulated. When, the industry feels the need to relax regulations the same is communicated through various forums to the regulator. Take, for instance, how IRDA recently relaxed norms for investments in mutual funds by an insurer. It has issued norms for investments in Exchange Traded Funds. Also, the regulator has amended the sector and investee company limits keeping in view policyholder’s protection. Regarding IT flexibility, we need to understand the relationship between the insurer and the insured. It is trust that binds both the insurer and the insured. And that trust requires the complete confidentiality of information. The IT setup captures all the information of the insured and hence it is important that the IT setup is well protected. The regulated environment ensures such confidential agreements are not breached.
Do you believe the IT standardization imposed by IRDA is good for business?
Yes, I agree with what IRDA has done. IRDA is in the process of implementing a business analytics project, which shall have various modules. Insurers are expected to submit all required data in a prescribed format, and this data has to be uploaded in their system. Such a standardized template will help with data analytics as all information, across the industry, shall be uniform.
IRDA has made it mandatory for insures to upload financial information on its website. This initiative has helped not just policyholders, but also companies to form strategies in line with the competition. It also allows policyholders to assess the financial position of an insurer before making a decision.
Has IT helped grow your function’s risk appetite?
Today, all our investments are managed through a system. Various regulatory and internal limits are all monitored by systems. Credit rating upgrades and downgrades are system monitored, giving us a sense of comfort to increase our risk profile.
Reuters has helped us with the data to analyze various companies where we could possibly look at investments. Such information is very critical, and today, our investment returns, and the credit profile of instruments, are among the best in the industry.
You’ve seen IT evolve. What has been IT’s biggest contribution to the investment function?
If you look at the investment assets managed by the Indian general insurance industry, it is in excess of Rs 1 lakh crore. To manage such a large investment portfolio, one needs to think beyond the use of Excel sheets. In 2008, IRDA made it mandatory for all general insurance players to have proper IT setups for the investment function, and these needed to have separate modules for front, mid- and back offices. The system has helped reduce manual intervention as the system performs all key functions of limit monitoring, IRDA reporting, and accounting entry generation.
If there is one thing you’d like IT to improve, what would that be?
Today, the investment function has very limited access to other systems within the organization. There has to be a seamless integration between various systems within the organization. We are in the process of implementing a core insurance application which shall replace our existing application. This shall help immensely to achieve efficiency in fund management. Varsha Chidambaram is principal correspondent. Send feedback on this interview to firstname.lastname@example.org