Technology with a Human Touch
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SENSITIVITY RESPONSIVENESS TRANSPARENCY INNOVATION TRUST Technology with a human touch Annual Report 2008- 2009 Contents Message from the Chairperson 02 Board of Directors 05 Message from the Chairman & CEO, Fairfax Asia 06 Message from the Managing Director and CEO 08 Financial Graphs Company Profile 2 Impact of Technology 3 Business Overview 8 Directors’ Report 40 Management Report 44 Auditors’ Report 52 Balance Sheet 54 Profit and Loss Account 55 Revenue Accounts 56 Schedules 58 Receipt and Payment Account 96 Product Portfolio 99 Glossary 00 Message from the Chairperson Our vision is backed by concrete steps to prepare for future growth and we continue to invest in the infrastructure required to expand the delivery of financial services across the country. 2 iscal 2009 was a challenging year for the global economy, with several developed economies experiencing sharp recessions. The crisis was transmitted to emerging market economies Fthrough the trade and corporate channels. The repercussions of the instability in the financial sector worldwide also impacted India temporarily through the reversal of capital flows and the sharp decline in exports. The Indian economy however demonstrated its resilience in the face of these challenges, with its financial institutions and corporate sector remaining sound and solvent. The unfolding events across the world’s financial arena also highlighted the opportunity that exists for India. The fundamentals of our economy continue to be strong and the Indian financial system is well-capitalised. While we have seen a moderation in GDP growth, our economy is performing significantly better most other countries. India’s growth is likely to accelerate well ahead of other major economies. At the ICICI Group, we continue to be committed to partnering India’s growth through delivery of a wide range of financial products and services to meet the needs of business and households. Our vision is backed by concrete steps to prepare for future growth and we continue to invest in the infrastructure required to expand the delivery of financial services across the country. Over the last year, we have taken several strategic actions to manage the risks of the environment. We are committed to serving our customers and capitalising on the growth opportunities across our businesses, while appropriately managing risks in the evolving environment. The year gone by has been an eventful year for the general insurance industry. The impact of detariffing was felt in the form of considerable pricing pressure and increased competition. A positive aspect of these industry developments was the emergence of insurance as a customers’ market. Customers now have competitive choice in their purchase decisions putting the onus on insurance companies to provide the best risk solutions at the right price. As a result, the critical success factors in a detariffed insurance environment are risk based underwriting, innovative product development, superior customer service, depth of distribution and cost efficient operations. Insurers who are able to develop capability and expertise in these areas will succeed more than others in building a sustainable business. ICICI Lombard has consistently invested in these areas keeping in mind the overarching objective of profitable growth. The challenges of the last financial year have only served to underline the criticality of these efforts and have enabled us to consolidate our focus in each function while strengthening their alignment with customer and market requirements. Our experience shows that enhanced customer service with fair and efficient claims settlement is a significant source of competitive advantage in the insurance context. We believe that future innovation in the general insurance sector will largely be in the area of customer centric service delivery. We continue to make relevant investments in infrastructure, manpower and processes to deliver best- in-class experience to our customers. Some of the key initiatives in this area include setting up our in-house processing hub for health claims; introducing a single 24x7 toll free number to access all our services; and establishing our own claim desks within motor garages. 3 Early on, we identified technology as a core element that linked all aspects of the business providing a scaleable and robust platform for sustained growth. The influence of technology pervades all functions across the policy life cycle and has allowed ICICI Lombard to reduce operational costs and pass on the benefits to the customer. Efficient operations also need to be balanced with high quality service orientation. An important element of our approach has been to keep technology subservient and sensitive to customer needs engendering a human touch to our technology solutions. The positive feedback from customers and stakeholders who have personally experienced the impact of this approach reinforces our belief that this is the way forward in building lasting customer loyalty and advocacy. Rural India represents a significant frontier of opportunity for the insurance sector and if addressed effectively has the potential to make India’s insurance penetration at par with international benchmarks. The need for risk mitigating solutions is also acutely felt in the segments at the bottom of the pyramid which usually have maximum exposure to risks that directly impact livelihood. ICICI Lombard continued to focus in developing cost effective solutions to reach out to and service this segment while partnering with the Central and State Governments. Technology again provided the platforms to drive financial inclusion for insurance be it the use of weather stations for weather insurance, RFID chips for cattle insurance or biometric smart cards for enrolment in rural health insurance schemes. We see robust potential for the general insurance sector as key growth drivers such as infrastructure investments, industrial activity and per capita incomes in urban and rural India show positive trends. Our business model allows us the flexibility and adaptability to capitalise on this growth opportunity and we are well positioned in each segment of the market with dedicated business teams focused on delivering value to customers and stakeholders. Our human capital continues to be our biggest strength. An enduring mindset of continuous quality growth through strong customer orientation permeates the organisation, building on a foundation of core values that are aligned around creating trust amongst all stakeholders. ICICI Lombard is an integral and critical part of the ICICI Group’s strategy of being a diversified financial services group. Our multi-segment presence has enabled us to contribute and be a catalyst to the growth process of our country. The future holds both challenge and promise. We are confident of realising the objectives that we have set for ourselves and look forward to the continued support of all our stakeholders. Chanda D. Kochhar Chairperson 4 Board of Directors Board Investment Committee K. V. Kamath Chandran Ratnaswami Chairman (upto April 23, 2009) Chairman Chanda D. Kochhar Chanda D. Kochhar Chairperson (w.e.f. April 23, 2009) Director (w.e.f. September , 2008) R. Athappan Sandeep Bakhshi Director Managing Director & CEO (upto April 30, 2009) B.V. Bhargava Bhargav Dasgupta Director Managing Director & CEO (w.e.f. May , 2009) Dileep Choksi S. Gopalakrishnan Director Head - Investments James F. Dowd Rakesh Jain Director Director - Corporate Centre & CFO N.S. Kannan Liyaquat Khan Director (w.e.f. May , 2009) Appointed Actuary S. Mukherji Director Chandran Ratnaswami Director M.K. Sharma Director H. N. Sinor Audit Committee Director S. Mukherji Sandeep Bakhshi Chairman Managing Director & CEO (upto April 30, 2009) Dileep Choksi Director - (w.e.f. May , 2009) Director Bhargav Dasgupta James F. Dowd Managing Director & CEO (w.e.f. May , 2009) Director H. N. Sinor Director Board Governance Committee Chanda D. Kochhar Chairperson (w.e.f. September , 2008) Chandran Ratnaswami Director Auditors H. N. Sinor N. M. Raiji & Co. Director Chartered Accountants M.K. Sharma PKF Sridhar & Santhanam Director Chartered Accountants 5 Message from James F. Dowd ICICI Lombard’s management performed well in planning for and adapting to this new regime. The singularity of their devotion to getting it right is impressive and comforting to us as a shareholder. 6 welcome the opportunity to once again share the observations of Fairfax Financial Holdings Limited from our perspective as a very supportive shareholder of ICICI I Lombard General Insurance Company. It is an accepted maxim that the best test of management is performance during periods of change. The changes in India are transformative. Our management team has managed them with distinction. The detariffing initiative in India is designed to modernize the market mechanism. Not surprisingly, it has unsettled and changed the way risk is priced and managed. Security and certainty, byproducts of the long standing tariff system are history. A free form competitive market has taken their place. Market forces now more than ever shape the actions, tactics and strategies of all players. This change required a careful re-examination of the fundamental skills employed by our management team. In the transition period the inherent risks of the enterprise increase and require a new level of surveillance, measurement and transparency. ICICI Lombard’s management performed well in planning for and adapting to this new regime.