ICICI Lombard investors need to look beyond tech edge, good execution

The results are visible. ILTakeCare app downloads have doubled year-on-year to 9 million, leading to a three-fold increase in the gross written premium (GWP) earned through the app. The company has also enhanced its digital reach by partnering with fintech companies Cred, and Groww, leading to a four-fold growth in the GWP earned through them over the last two years. 

The digital-led business growth also means substantial cost savings through operational efficiencies. As such, despite a 17% rise in GWP for FY23, the company’s branch network has increased only marginally from 283 to 305.

To be sure, more than operational costs, insurance companies are vulnerable to losses owing to the incurred claims. ICICI Lombard has kept a tight leash on incurred claim ratio as it has never crossed 75% of the net earned premium over FY19 to FY23 despite the covid-19 pandemic, and floods in southern India, thanks to its data analytics-led right pricing of risk and high underwriting standards.

In simple words, the underwriting standard is the risk assessment skill of an insurer regarding the likelihood of a claim at the time of insuring a person, object, or property. The company has integrated CIBIL data to reduce the risk of unprofitable motor insurance proposals. A high CIBIL score is rewarded with a lower insurance premium.

The geographical risk can also be factored in appropriately as ICICI Lombard stores more than four petabytes of data. Even when an actual catastrophe occurs, ICICI Lombard can curtail losses by sending real-time risk notifications to property owners as it did for Chennai floods in 2023. This was done with the help of data collected from 2015 floods, which showed that the quantum and timing of the rain is similar to 2023.

ICICI Lombard has achieved almost a 10% drop in human touchpoints per policy in terms of onboarding and servicing. In fact, it is already issuing 99% of the policies electronically even before insurance regulator Irdai made it mandatory from 1 April 2024. 

The electronic processing saves the cost of paper printing and also comes in handy for the policyholder at the time of processing the claim. Even cashless hospital authorization is being handled with artificial intelligence (AI) as 64% of the approvals are handled without any human interface. Non-cashless claims or reimbursements of up to half a million are also processed through automated claim settlement using generative AI. 

Lower touchpoints leading to lower expenses should further enhance ICICI Lombard’s profitability if its aspiration of 4.5% market share in health indemnity is achieved from the current 3%.

Data analytics will also play a key role in setting the right tariffs in the future as and when general insurance companies are allowed to decide their prices for motor TP (third party) and fire insurance products.

Notably, since the start of the cloud journey a decade ago, the company has become the first large insurer to shift all core applications to the cloud, securing safety and reliability of the database. 

Its ability to underwrite 18,000 policies and process 1,100 claims every hour should aid in performing better on customer acquisition and retention without a proportionate rise in the cost of automation. Even so, notwithstanding the technological edge and the strong growth prospects of the general insurance industry, the valuation of ICICI Lombard stock at a price-to-earnings multiple of 40 times based on FY24 consensus earnings estimates, looks stretched.