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Business Overview

GENERAL INSURANCE SECTOR OVERVIEW

The General Insurance sector in India grew by 12.8% in 2004-05 with the private sector contributing to over 60% of the overall

industry growth. The eight private sector players have achieved critical mass and carved out almost 20% of the overall market

from the public sector players - a significant indicator of the impact of four years of liberalization on the industry. The total Gross

Written Premium (GWP) for the industry stood at Rs. 180,952 million for fiscal 2005 up by 70% since liberalization.

While there has been severe competition for market share amongst the corporate accounts, one of the key drivers of growth of

the private sector has been the increase in retail channels of distribution beyond just agents to include bancassurance, brokers,

telesales, direct sales force and the internet. Bancassurance continued to be a strong alternative channel with an increasing

contribution to overall retail sales. Product innovation in terms of new products and additional features in existing products

helped cater to specific customer needs and to differentiate the offerings in the market. Since liberalization, there has been a

clear shift from a common set of products to a range of product options across companies giving the end customer greater

choice. In a fiercely competitive environment, all companies have also heightened their focus on customer service as a means

of differentiation for corporate as well as retail customers.

Rural India was in the radar with products like Health Insurance, Weather Insurance and Group Personal Accident being areas of

focus with an emphasis on building up cost effective and sustainable distribution models.

The penetration of general insurance in India at 0.62% in 2003 is about 40% lower than that of a comparable growing economy

like China, which was at 1.03%. Gross premiums in China are almost four times that of India though the GDP is just about double,

clearly indicating the market potential that still needs to be bridged.

The Indian industry is governed by tariff for major products like Fire, Engineering and Motor constituting about 65% of the total

GWP. The Insurance Regulatory and Development Authority (IRDA) started the de-tariffing process in fiscal 2005, to allow

insurance companies to freely price the risk as per their own underwriting guidelines. The first product to be detariffed was

Marine Hull Insurance effective from April 1, 2005. The IRDA is expected to lay down a road map to de-tariff the entire industry

in a phased manner and this should be the trigger for the industry to move to the next level of maturity.

ORGANIZATION STRUCTURE

Our organizational structure is designed to be customer focused and responsive to business dynamics, while seeking to ensure

effective management of business risk with operational control and consistency in standards across the organization. The

organization is divided into four principal groups – Retail Business, Wholesale Business, Rural & Agricultural Business and

Shared Services.

The Retail Business Group is responsible for generating business through bancassurance, direct field force, brokers, agents,

telesales and the internet. The primary products sold through this group are Health, Travel, Motor, Home and Shop Insurance

and there are dedicated teams to manage each channel.

The Wholesale Business Group is responsible for the insurance needs of corporates (large, medium and small enterprises),

State and Central Government institutions and financial institutions.

The Rural and Agricultural Business group is responsible for generating business in rural India. This underserved segment is of

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Business Overview

special interest to ICICI Lombard as part of our social responsibility. The focus products are Weather and Health Insurance.

Shared Services comprises all support and corporate functions namely Finance & Accounts, Administration, Investments,

Operations, Information Technology, Customer Service & Underwriting, Reinsurance, Human Resources and Marketing.

BUSINESS OVERVIEW

During fiscal 2005, ICICI Lombard retained its leadership position amongst all private sector insurance companies and closed

the year fifth in the industry after the four PSUs, with a growth rate of 80 % and a GWP increase from Rs. Rs. 4,912.2 million to

Rs. 8,851.7 million. The company growth was driven by growth in Motor, Health, Personal Accident and Travel Insurance

products.

During the year, we focused on de-risking our portfolio and diversifying our revenue streams. Our thrust on retail lines of

business contributed 35% to our GWP with the balance from corporate products. We exceeded our social commitments with

our rural portfolio contributing about 6% to total GWP. Our track record of effective servicing of large numbers of rural claims

gave confidence to various state governments including Andhra Pradesh, Gujarat, Uttar Pradesh, Uttaranchal, Maharashtra,

Rajasthan & Tamil Nadu where we were enlisted to cover over 70 million rural lives.

We also benefited from increased reach and penetration across markets and customer segments. We opened 40 new offices in

fiscal 2005 and added 14 new cities to our overall network in India. We today have operations in 96 offices spread over 72 cities.

Our commitment to superior customer service, product innovation, distribution reach and investment in technology helped us

service a large customer base across the retail, corporate and agri sectors.

Retail Business

Retail insurance is a key element of our growth strategy and we see it as an important driver of market expansion. The reduction

in interest rates leading to affordability of retail finance, growth in disposable incomes and higher lifestyle aspirations across

urban India have led to higher levels of asset ownership including homes, consumer durables and motor cars along with a

growing incidence of overseas travel. Higher stress levels in a competitive and consumerist society have also increased the

incidence of lifestyle ailments along with awareness of the costs involved. These factors underline the opportunity in retail

insurance and insurance companies that are prepared to tap into this opportunity with the right product, pricing and distribution

strategies will succeed in this business.

ICICI Lombard’s retail sales increased from a GWP of Rs.750 million in 2003-04 to Rs. 3100 million in 2004-05 with Motor and

Travel insurance being the biggest contributors with 43% and 13% share of the retail portfolio. The required focus on each

aspect of our retail business is ensured through dedicated teams for Bancassurance, Motor, Health, Home, Travel, Shop

Insurance, telesales, advisor management and online insurance.

In fiscal 2005, the company invested in developing a multi – channel distribution strategy to significantly increase reach and to

support customer acquisition. We were present in 96 offices in 72 cities across India with 130 relationship managers, over 2800

direct feet-on-street, 2500 trained agents, a pan-India bancassurance and alliance footprint, telemarketing offices in 7 cities and

an online insurance facility for our end customers. All our retail products have web based access allowing our agents to issue

policies for their customers immediately.

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Business Overview

Product innovation was a focus area with specific features being added to our existing products based on ongoing customer

feedback. We introduced our comprehensive Health Gold product with compulsory free medical checkup, covering named pre-

existing diseases, maternity, alternative treatments, ambulance expenses, external mobility aids or appliance expenses, hospital

daily allowance and nursing allowance. In Overseas Travel Insurance we introduced the Platinum Plan covering trip cancellation

and interruption, trip delay, missed connections, daily allowance in case of hospitalization and home insurance over and above

the medical & dental expenses cover.

Bancassurance continued to be one of the key retail channels and contributed Rs. 1200 Million or one – third of the total retail

premium during the year. We have developed successful bancassurance relationships with ICICI Bank and ABN Amro Bank.

ICICI Bank is India’s second largest bank with more than 500 branches spread across the country with a wide range of retail credit

products. ABN Amro Bank is a global bank with assets over US $504 billion and is present in major Indian cities with the full

range of banking products. Our focus has been to develop few but strong and effective bancassurance relationships and work

closely with our partners to seamlessly integrate our products and processes. In the process we have developed customized

products and solutions for our partners and this overall approach also helps us deliver quality customer service and strong

customer relationships. We now contribute a major part of bancassurance premiums in the country and our success with this

channel in India is developing into some of the best benchmarks internationally.

As the penetration of internet access increases and with the growth of a younger, more tech-savvy population, online insurance

is a long-term opportunity in which ICICI Lombard has a first mover advantage. With 128-bit encryption and TRUSTe certification

to ensure highest levels of security and privacy, our customers enjoy end-to-end online transaction ability for instant issuance

of digitally signed policies. There are multiple online payment options including credit card payment and direct debit of bank

account. The customer gets password protected access to his portfolio and can view, print and renew policies from anywhere

in the world. This facility is available on our website www.icicilombard.com and on www.icicibank.com and www.icicidirect.com.

We believe we have now set a strong foundation for our retail business and successfully created a cost effective distribution

network through the right mix of technology, direct sales and alternate channels.

Wholesale Business

ICICI Lombard seeks to provide a comprehensive range of insurance-based risk management solutions to corporates and

governments across the country supported by superior customer service and robust reinsurance agreements. Wholesale

continued to be the mainstay of our business with a GWP of Rs.5750 million contributing 65% to total premiums. The Fire and

Engineering portfolio brought in the maximum business contributing 66% of the Wholesale GWP.

De-risking the portfolio is a key focus area and ongoing analysis for caution patterns based on industry, geography and product

was used to fine-tune our underwriting guidelines. Our portfolio is diversified across various industries including textiles,

power, steel, engineering, chemicals and auto.

We focused on consolidation of accounts through customer retention programs, fair pricing of policies and enhanced customer

service. Focusing on key accounts enabled ICICI Lombard to receive premiums in excess of Rs.10 million from about a hundred

corporates. The customer service manpower was increased with dedicated teams for corporate claims. Within this, a separate

team for Fire / Engineering and Marine was instituted.

Most State and Central Government institutions are self-insured and this is an area where we achieved reasonable penetration.

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Business Overview

A dedicated team services the needs of this segment and has built credibility around our speed of response to customer

requirements and in claims settlement. In fiscal 2005, GWP from this segment was about Rs.1400 million.

Rural and Agricultural Business

Over 70% of India still resides in rural areas. The vulnerability of this segment to risk is high and their inherent ability to cope

with it through other mechanisms is relatively low hence their need to have a risk mitigating product is very high. In an agrarian

context, labour, land and the dependence on weather become the key factors that impact livelihood and these inherent risks

need a safety net as an enabler for economic growth. ICICI Lombard formed its Rural and Agricultural Business Group in July

2004 to service this vast underserved segment in a viable and sustainable manner.

During the year we invested in cost effective distribution infrastructure and developed products that are simple and easy to

administer and are suited to the needs of the rural customer. To ensure smooth customer service, we supported these efforts

with a strong claims servicing infrastructure at the village level. Weather Insurance, Health Insurance and Group Personal

Accident have been the focus products since they also cover the most relevant risks faced by the rural and agricultural

segment.

Weather Insurance covers the weather related risks faced by crops or by any other economic activity and promises immediate

claims redressal due to the availability of objective data. Building on the initial success of the launch of Weather Insurance

during 2003-04, the product was offered to a larger geographical area and covered a wider number of crops. During the year we

insured over 2000 farmers and over 6800 acres of land of Groundnut, Castor, Orange, Cotton, Coriander, Black Gram and

Gherkins in the states of Andhra Pradesh, Rajasthan, Tamil Nadu, Madhya Pradesh and Uttar Pradesh. Total claims settled were

about Rs.3 million. The Government of Rajasthan endorsed the product and also gave a premium subsidy for the small and

marginal farmers. Technical collaborations with national bodies in agriculture were set up to develop technically sound products

that would be well accepted by the farmer. We are working very closely with the Indian Meteorological Department to ensure

robust data availability through weather stations in all our target geographies.

The company also introduced Weather Insurance solutions for non-agricultural applications. For the first time a corporate

covered its production risk through this product – GHCL became the first company in the country to take Weather Insurance to

protect losses due to a drop in salt production because of excessive rainfall. A first of its kind Weather Insurance solution to

protect the agricultural lending portfolio of an NBFC – Bhartiya Samruddhi Finance Limited was also offered during the year. The

initial success of these structured solutions indicates the potential that exists in this area.

As in urban markets, Health Insurance is a relevant need in rural areas and we launched customized products like floater health

policy and packaged policies with a combination of hospitalization, Personal Accident and Critical Illness covers. A unique

project was undertaken with Narayan Hrudayalaya and Biocon to offer Health Insurance covering surgical expenses, hospitalization

and a free OPD facility in Anekal Tehsil of Bangalore district. We also offered training on health and nutrition through health

camps in the Tehsil. The number of lives covered is about 50,000 under this program. Across various programs we issued over

300,000 individual rural health insurance policies with photo identity cards.

We focused on bringing down our distribution costs by working with partners who already have a strong rural presence and who

have earned their customers’ trust, including Micro Finance Institutions (MFIs), Non Government Organizations (NGOs), Self

Help Groups (SHGs), Co-operative Banks and established rural distribution networks. Our rural products are being offered in the

states of Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Gujarat, Rajasthan, Uttar Pradesh, Punjab, Haryana, West Bengal,

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Business Overview

Madhya Pradesh and Orissa. During 2004-05, the number of distribution points from which rural insurance business was being

sourced crossed 2500. We worked very closely with ICICI Bank’s rural distribution network of kiosks and rural franchisees to

promote our products. We have tied up with ITC’s e-Choupal network for rural distribution and selling of insurance products

through this channel was done in the state of Uttar Pradesh in about 11 districts.

Extensive work was undertaken on educating the rural population and related stakeholders on the importance of insurance for

risk mitigation. Different platforms have been used to educate organizations like NGO’s, MFI’s, Community Programs and Rural

Associations on the importance of insurance and the role to be played by them. Door to door campaigns were also made to

promote the need for insurance.

The Rural and Agricultural Business group was invited to a number of policy level conferences organized by the Ministry of

Agriculture, NABARD, FICCI, CII, etc. for discussions on the rural insurance segment and on micro insurance regulation.

REINSURANCE

The company has reinsured two - thirds of its risks with reinsurers. ICICI Lombard’s reinsurance program is robust with the risk

well diversified amongst the various leading reinsurers in the world who fit both the criteria of size and rating. Reinsurance

programs are assessed on the quality of securities used and their spread and we have one of the two AAA rated securities in

the world as part of our program. As an indicator of the strength of our reinsurance arrangements, we received one of the

highest reinsurance commissions in the industry. Our initiative in creating a state of the art risk accumulation and tracking

system continues to be a pioneering effort in this part of the world. The front end of this system is a digital map which is updated

to monitor earthquake zones, wind storms and other natural catastrophic exposures in any region. This helps us in monitoring

our risk exposure on a real time basis and plan appropriate risk hedging strategies by buying catastrophic covers.

The company has established good relationships and recognition amongst the leading reinsurance players in the world and has

developed the capability to obtain reinsurance for various mega risks in the area of property, liability, aviation, energy and port

package covers. This has enabled us to offer a wide range of risk management solutions to our corporate customers while

giving them comfort on our ability to service large claims.

CUSTOMER SERVICE AND UNDERWRITING

ICICI Lombard improved its claims disposal ratio from 89% in 2003-04 to 94% in 2004-05 and the average claim settlement time

stood at 25 days as compared to 26 days in 2003-04. We settled claims worth Rs. 2.62 billion in fiscal 2005 with the number of

claims settled increasing from 23,487 to 84,970. The increase in the number of claims is a reflection of our growing retail

business and we have invested in our customer service function in line with this trend.

We realized that the effectiveness of claims settlement depends on the upstream underwriting of the risk and vice versa. Based

on this insight, ICICI Lombard integrated its underwriting and claims function to create a team of specialists for each product

class who take care of both pricing of risk and claims servicing. This brought in the synergy and alignment for better understanding

of the dynamics of risk hence leading to better customer service. There are regional customer service teams looking at claims

and underwriting, including quote approval, policy approval, claims assessment and approval.

To develop our technical expertise in handling high volume motor and health claims we set up strong in-house teams, which

includes engineers and doctors respectively. We have directly tied up with over 400 garages in 66 cities and with over 1800

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Business Overview

hospitals across the country through our Third Party Administrators to ensure speedy and cashless settlement of claims. In

addition, we have product champions for Rural, Travel, Health, Marine and Property claims.

For our corporate customers, we have risk engineers from diverse fields to underwrite risks spread across various industries.

Their role includes reviewing of risk, coming up with risk solutions and servicing from a claims point of view and in a post-loss

scenario, with loss minimization advice and safety audits after the loss. Risk inspections are undertaken based on sum insured,

type of industry and the underlying risk.

ICICI Lombard had no large losses during the year. We strengthened our underwriting approach in regions and products which

were loss making, thereby improving the loss ratio from 88.6% in fiscal 2004 to 71.8% in fiscal 2005. A dedicated Business

Intelligence team was set up for ongoing portfolio risk analysis from various aspects.

To create a deterrent in the market against attempted frauds within and outside the company, an Investigation, Legal and

Management Reassurance Group was formed to control frauds and misappropriations. This initiative has also helped in heightening

the sensitivity towards value at risk from an organizational perspective across all levels.

We proved our ability to handle semi-catastrophic claims during the floods in Gujarat and Punjab as well as during the Tsunami

disaster. Dedicated response centers were set up and ground teams were deployed in conjunction with surveyors to ensure

speedy settlements with immediate on - account payment based on the extent of damage. We successfully demonstrated our

ability to handle large number of claims at the village level by setting up a dedicated team to handle such claims and this gave

us the credibility to insure more than 70 million lives in rural India in fiscal 2005 under various Personal Accident schemes in

conjunction with a number of state governments.

OPERATIONS AND TECHNOLOGY

ICICI Lombard’s operations are geared to create scale that would service the growth in retail lines while at the same time being

cost effective and efficient. In order to service large retail volumes at consistent service levels across the country and to ensure

that business expansion is not constrained due to lack of infrastructure, operational teams are organized at both the central and

regional level in a hub and spoke system. During the year, we started benchmarking our internal processes with the objective

of providing world-class service levels and acquired ISO certification of our operations, becoming the first Indian general

insurance company to do so.

We have invested in technology extensively to consolidate our operations, while creating innovative methods of servicing our

customers. Deploying a technology platform that allows on the spot online policy issuance has optimized cost of distribution,

giving access to our channel partners as well as end customers. The application has been scaled up successfully to meet the

growing needs of our business. 27,000 users – corporates, intermediaries and individual customers - are currently using the

system for booking policies. Through the year, 87% of our policies were issued online with 99% being issued online in March

2005.

The company also invested in a Customer Relationship Management application that has been designed to provide prompt

customer service and reduce operational costs in processes like claims handling. The entire cycle of claim origination to

settlement is being managed on this system and it aims to bring together the call center, surveyors, investigators and customer

service managers in a streamlined process to service the customer.

The implementation of Microsoft’s Sharepoint portal has helped create a more collaborative environment within and across

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Business Overview

teams, throughout the company. The portal facilitates document management that enables a faster approval process, speedier

access to authorized data and accountability on turnaround time. Efficiency in internal processes has helped reduce errors and

improve response time to customers.

INVESTMENT

ICICI Lombard’s funds available for investment are deployed in various asset classes in accordance with the guidelines prescribed

by IRDA and in line with our investment policies which are periodically reviewed and approved by the board.

The Investment Committee supervises the implementation of the investment policies and guides the asset allocation strategy to

ensure financial liquidity, diversification and to generate superior returns.

Our investment philosophy is value driven with a bias towards a buy-and-hold strategy. We have adopted stringent risk mitigation

procedures to protect our capital and solvency from exposure to market risk, duration risk and credit risk.

HUMAN RESOURCES

A general insurance organization has a number of people-intensive functions such as Claims, Operations and Customer Service;

specialized functions such as Underwriting and Reinsurance as well as a range of support functions. In the absence of any

tangible physical products, human capital is the key resource that the company creates, develops and nurtures. Alignment with

the corporate vision, ethos and values is critical and the continuous sharpening of the skills and abilities of people is a prerequisite

while building a world class organization that is a leader in its industry. The key objective of the Human Resource function is to

ensure employee satisfaction and retention by creating a performance enabling work culture within the organization. The

function focuses on recruitment, compensation, annual performance appraisal, career planning, training and development.

In fiscal 2005, we continued our commitment to develop and enhance our human capital. Our manpower strength rose from

560 employees in 2003-04 to 1249 employees in 2004-05.

Our talent acquisition philosophy is to deploy the right person for the right job based on the person’s competencies and further

hone the skills through on-the-job training and cross-functional exposure. Recruitment is based on a sound manpower plan and

takes into account the organization’s present and future growth projections. Challenging job opportunities within the organization

acts as a catalyst towards employee job performance.

We believe that well-trained employees will give the organization a competitive advantage in the market place. ICICI Lombard

has various training programs in product, process and soft skills to equip our employees with the desired functional and

behavioural skills. To meet our growth objectives, we focus on and value entrepreneurship and leadership development.