First Steps into A Big Market Date:   Friday , June 01, 2001 Finally, after 30 years of closed doors, whimsical operation, and little innovation, the India’s parliament opened the insurance industry to the private sector in December 2000. Foreign companies have been allowed a maximum of 26 percent of equity participation in any insurance venture, representing this struggle between political ideologies and the force of globalization and economic liberalization. Since then, a slew of partnerships between international insurance companies and local Indian business conglomerates have been announced, including Tata-AIG, HDFC-Standard Life, ICICI-Prudential, Max New York Life-ING Vyasa Bank, JK Bank-Metlife, and so on. They are looking to offer protection to India’s one billion people, of whom only five percent have life insurance coverage, representing a market opportunity of about $10 billion. Perhaps the most high profile among these partnerships is the joint venture between Indian business conglomerate The Tata Group and the world’s largest international insurance company, American International Group Inc., (AIG). In an interview with Yogesh Sharma, editor, siliconindia, AIG Chairman and CEO Maurice R. Greenberg, the man behind the $200 billion global insurance heavyweight, outlined the long-term objectives and vision of AIG in India as it takes its first steps into the domestic market. Yogesh Sharma: What is your broad business vision as you begin doing business in India? Greenberg: We were in India operating a non-life business in the 1950s. When the insurance industry was nationalized, we were obviously forced to leave. We understood some things about the Indian market then, and we have a legacy of knowledge about the country. We are pleased to be able to come back. We have warm feelings about India and its people, and we believe that we will not only bring insurance and technology knowledge to the market, but also, as a result of that, we will be investing more in India. It is very clear that any country that begins to open its economy is better off than any country with closed economy. That has been proven many times over. The more doors India opens up, deregulates and makes it easier for foreign investments to come in, the better off India and its people will be. Any country that has a monopoly through government entities in the market provides no incentive to be efficient or creative or encourage competition. The limitation of 26 percent on foreign ownership in insurance companies is not the greatest incentive, but it’s a beginning. We’ll bring in new products, new marketing strategies, new technologies, new administration. That’s what India needs. Every place we operate throughout the world, the country is better off by having foreign companies in the insurance sector. What is most attractive to AIG in the Indian market? India’s economy has great potential. Its people need the products that we will bring to it. What we need is a regulatory environment that is encouraging and not repressive, where we can bring the best of our expertise into the Indian insurance market. What will happen is that the other companies in the market will learn from us. This has happened in other countries where we have done business, where there had been a monopoly. The best example of this is China. How do you view the challenge to AIG in India as compared to all the other countries that it has expanded into? Every time you start doing business in a new country, there is a period of learning for the country and the company. We will bring new ideas – some of them will be approved quickly, and others will need to be explained to the regulators. It’s likely that some of the local Indian companies, in particular the government companies, will object because it will be seen as a threat. Change is a threat by itself. So we will have the job of explaining to the regulators that what we bring to India will benefit it and its people. We are not underestimating the challenge in a market that has been closed before, and bring about change. How will you compete with local companies, particularly the public sector companies that have a huge customer base, and will likely get their act together in terms of professionalism and customer support? We will introduce products in the market that they can copy. But though they can copy what we are doing, they can’t copy what we are thinking. We’ve faced competition all over the world, from both public and private sector companies. I am not worried about competition, as long as we are treated fairly by the regulators and not discriminated against. If we have an even playing field, we’ll compete for business in the areas we want to be in, and over a period of time we will carve out a niche for ourselves. Make no mistake, the local companies will always dominate the marketplace in any country. The foreign companies will not dominate the market. But they will bring new opportunities, not only for the public, but even for employees. So there will be a place for the foreign companies. If the 26 percent equity ownership limitation is not increased by the government, what will be AIG’s strategy? If it doesn’t increase over a period of time, many foreign companies will become discouraged from spending too much time and effort in India and will go away to countries that have better opportunities. That’s true in any field. If India wants to attract and keep foreign companies that will bring capital, technology and new jobs, then the companies will need to have more equity, since they can’t be doing all this for nothing in return. What is the time frame for profitability for Tata-AIG? We take a long-term view. You don’t build an insurance company overnight. There is a capital strain by putting new business on the books, building new infrastructure, technology, distribution, and for every policy you write, you need to put up capital reserves against it. We’ve done this many times and are prepared to take a long-term view. How did AIG choose Tata? Tata is a great company with a great name in India. I have known the company’s Chairman, Ratan Tata for a number of years and I have high regard for him and his organization. They may not be in insurance, but they are in many other industries and so they will make a great partner for us. We wanted someone with the highest integrity, wide knowledge of the country and businesses, and they provide all of that. What will be fabric of this relationship? We will be managing the insurance business, and they will have a voice in that because they know the local market and landscape. They’ve had relationships that can be beneficial for the joint venture. Thus, we are both essential to the success of the organization. They own 74 percent of the equity, but over and above that we have a management agreement that makes us partners, regardless of the equity participation. Things are different when you address India’s rural market. How do you plan to capture your projected five percent of the rural market? This is a market that has not been developed at all. We will do what we can to provide the proper coverages – by that I mean coverages that will not only be good for the areas and the people, but also it will have to be done on the basis that there is no loss for the company. You can’t build a business on losses. Profit is the oil that makes businesses and economies tick. So while we may have a big social responsibility, we try to run the business on the basis of profits. Because if you have profits, you hire more people, you invest more in the country, and as a result of that, the economy does better and the company does better. Profit is not a dirty word. So, we’ll address the rural market appropriately, but I hope pragmatically.