Insuring the insurers

For someone who knows she’s one of the “custodians of all risky business in the world”, Alice Vaidyan sounds remarkably calm when I speak to her. But then, she’s just finished a major initial public offering of Rs 11,370 crore.

It’s the country’s third-largest IPO to date, and the largest in the financial sector. It’s an exercise she completed in a remarkably short four months, and she is justifiably proud of that. There’s a lot more she’s upbeat about, largely about GIC’s role as a reinsurer and the way business has grown under her.

Reinsurance, by nature, is a risky business. Boiled down to the basics, it’s the practice of insuring insurers, both life and non-life. A good reinsurer needs to be able to manage risk as well as price it. I ask for explanation and get a lesson on the various models that insurers use, particularly the catastrophe and disaster models.

These are computer-assisted models that allow insurers to assess risks in a portfolio. For instance, while pricing an airline, the disaster model looks at some worst cases, such as the company’s losses if two aircraft fully loaded with American and European passengers were to crash over Manhattan.

Listening to Vaidyan’s technical explanation, I can’t help but wonder if she is a trained economist. Turns out she’s a postgraduate in English. (Strangely enough, Arundhati Bhattacharya, till very recently chairman of State Bank of India, is also a postgraduate in English. Financial services clearly attracts the humanities lot, and what a good thing that is for finance.) Vaidyan says she wanted to be a doctor (fun fact: her surname actually means doctor) and studied science, but turned to English after graduation because she loved the subject.

The mix of science and arts has clearly worked for GIC, as Vaidyan brings a mix of left- and right brain thinking into running the insurance behemoth. Even as she talks of the various models used to manage risk, and the renewed focus on big data and robotics, she also stresses on the fact that insurance “is about trust and long-term relationships”

Vaidyan has been with GIC for 10 years, and in the insurance business for 25. Those have been eventful years for the industry in general and for GIC in particular. Compared with some public sector undertakings, which go back a hundred years, GIC has a short history.

When the general insurance sector was nationalised in 1972, the government took over the shares of 55 Indian insurance companies, as well as the undertakings of 52 insurers in the general insurance business. GIC was formed to superintend these companies as well as carry out general insurance, and after some consolidation in the space, it was left with four subsidiaries, which had exclusive rights to carry out general insurance in the country.

In 2000, with the introduction of the Insurance Regulatory and Development Authority Act, GIC’s exclusivity over general insurance was removed, and its supervisory role was stopped. Later that year, GIC was renotified as a reinsurer, and has functioned in that capacity since.

With the government divesting its stake in GIC through the IPO, the company will have to adjust to a new set of stakeholders. Vaidyan doesn’t seem fazed by this, nor is she afraid that foreign players, which have now been allowed to set up shop here, will eat into GIC’s market. The Indian reinsurance market, she says, has been growing at 25% compared to growth of 1% to 2% in the developed world.

Vaidyan’s sights are now set on entering the top 10 global reinsurers list, “which we are most likely to achieve by the end of the current fiscal”, she says confidently. She is already benchmarking the company against international firms. “GIC Re is the sole investor choice in the reinsurance industry in India and our performance could only be benchmarked against global peers.”

She’s got other big, international plans as well. Among other things, she wants to expand into developing markets such as Brazil, Myanmar, and Bangladesh, as well as into mature markets like the U.S. On the cards is establishing a syndicate at that holy of holies, Lloyds of London. “Diversification across geographies and industries is a must today,” she says.

Meanwhile, she wants to grow GIC’s life and liability businesses, as well as “venture into space and cybersecurity lines”. For this, she says the reinsurance behemoth is relying heavily on technology; “Big Data and analytics, artificial intelligence, and robotics”. While technology could be a great aid, Vaidyan also sees it as GIC’s real challenge. “With the advent of newer and newer technologies,” she says, “we have to keep learning, adapting, and innovating to stay ahead of the technology curve.”

In the course of our conversation, Vaidyan lets slip that she is a trained Western classical pianist. Her taste in music is eclectic—Malayalam music, Carnatic classical, and rock. “We grew up on Beatles and Pink Floyd,” she says. As a fellow rock fan who grew up on similar fare, I’m tempted to ask if she’s familiar with Smokey’s “Livin’ Next Door to Alice”. But given that I’m talking to the woman who is heading one of the largest financial services companies in the country today, that seems terribly flippant, so I resist.