Henri de Castries, 51 (he shares his birthday with India; August 15) is the Chairman of the management board and CEO of AXA, the global insurance and asset management giant (it ended 2005 with around m72 billion or Rs 3,81,600 crore in revenues and with assets of close to m1.1 trillion or Rs 58,30,000 crore under management and ranked #13, the highest for any insurance company, in the Fortune Global 500). Although, AXA can trace its history back to 1817, the company was really born in 1982, when its modern day founder Claude Bébéar, embarked on an acquisition campaign (he picked the name AXA around the same time), acquiring distressed companies in various parts of the world and weaving them into a global financial powerhouse. In 2000, de Castries, Bébéar's identified successor, took over as CEO. The media saw him as a process-oriented manager, although the man himself brushes this off as something that comes from media's proclivity to present caricatures. "I was involved in every major acquisition since 1989," he says. "And I think I did just a little bit more than look at the processes." de Castries took over at a time when the insurance industry wasn't doing too well and he embarked on a process of consolidation, reducing costs, improving processes and focussing on customers. "We didn't solicit our shareholders once in this period of turmoil," he says, referring to the fact that it was common, in the early 2000s, for insurance firms to raise capital again as a way out of their troubles. "We have grown our earnings 2.8 times since 2000," he adds. "Not too many of our competitors can say that."

Last year, AXA and Bharti Enterprises formed a joint venture (in keeping with Indian regulations, AXA holds a 26 per cent stake in this although it would like to increase it to 49 per cent), Bharti AXA, to operate in the life insurance space in India. The company is expected to begin operations in the latter part of 2006 and hopes to have a presence in 26 cities by the end of its first year of operation. In India recently, de Castries discussed the Indian market, AXA's plans for it, and innovation in the business with BT's R. Sukumar. Excerpts:

We were a little surprised to find you staying in the non-smoking floor. France is a country of smokers...

It is not as strict as America about where you can smoke and where you can't. But you have to understand that smoking shortens your life expectancy.

In Europe, in several places, the (insurance) tariffs, the pricing is different for smokers and non-smokers. Is that forbidden here?

No, in the general insurance space, several things are tariffed (tariffs are fixed). They will be detariffed sometime late this year. In the life insurance space, although tariffs aren't fixed, given the demographic and disease profile, and life expectancy here, most insurance firms probably agree on the risks here. How many times have you been to India?

Total? I don't know. In the last 10 years, with the frequent trips to Bangalore (where the company has a business process outsourcing operation), it must be around 10 times.

When did you first come to India?

When I was a student. Years, years, years ago. I visited Delhi and Jaipur. It was a short stay. It was in 1975, or 1976. It was a long, long time ago, and I think the country has changed.

Your BPO has a presence in Pune and Bangalore. It's been there for what, five, six years now?

Oh, more than that, because it was started by Guardian Royal Exchange, which is a British company we bought in 1998. At the time, when we started the due diligence, we found that there were some 30-35 people in Bangalore. When I asked "Why?" the first answer was, "Oh, it is because the former ceo was the son of an Indian army colonel and had been raised in Bangalore and thought it would be good to have some people in the city." We looked at it, and thought it could be an opportunity to help the UK business become competitive. We had cost issues in the UK and what we have done is progressively scale (UP) the operations in Bangalore and Pune, where we now have 2,500 people (together), and we have offshored things that were done in the UK, then the US, and Australia and Japan. For us, it is an opportunity to get high quality (work) at a very accessible cost; it helps us reduce the cost in Europe and, therefore, makes the business more competitive and gain market share.

"The growth is going to come from Asia. That is why we want to be here"

Have you ever faced any flak for this? AXA is, after all, a French company and....

In Europe, of course. In the beginning (the behaviour of) the unions ranged from the defensive to the highly aggressive. What we did was very simple. I think you can change things if you explain them properly. We told the union, "We will send a delegation that you pick to Bangalore, and once you go there and see what is happening and then come back, we will have our discussion." They went to Bangalore. They saw that the facility was in a fine working environment. They saw that the people there were young and very skilled and doing a very good job for the UK operation; at that time they were doing mainly that. When they came back, the nature of the dialogue had changed. We have what we call a European Workers Council, which is a body that meets every quarter, for a day-and-a-half. It is composed of all unions from Europe. I spent half a day there. I told them, "You've seen what we are doing in Bangalore." What we have done is to convince them (the unions) that this (offshoring) was a way for us to gain ground over the competition. The UK unions were very helpful. They explained to the other unions, the French, the German and the Spanish ones that had we not outsourced, we would have been less competitive in the UK market and lost market share. And losing market share means losing jobs.

If you look at consumer products, or if you look at telecom, the centre of gravity is moving towards Asia. India and China are big markets. However, right now, a very small portion of AXA's insurance revenues come from India and China. Going forward, how important are these markets going to be to you? How much time will it take for the centre of gravity of this business to move to Asia too?

A generation. What's driving our business is two things. The accumulated level of wealth on the one hand. Then, the speed of accumulation. The speed of accumulation is now here, and is significantly higher than in other places, but it is starting from a lower level. Today, the growth is higher here than in the US or Europe, but the asset base is lower.

The growth is going to come from Asia. That is why we want to be here. We want to be in the core markets, not everywhere. We want to have a diversified geographic presence. We want to be in Asia. Contrary to most of our competitors, we have decided to go to the Japanese market in 1999 because we thought it could be a great market. There was a window, between 1998 and 2001-02, when it was possible to gain control of some distressed Japanese (insurance companies). It is the second biggest market in the world for our business.

We have a lesser presence in other parts of Asia, but now we have the resources, we have the time, and I am not worried by the fact that we are not the first entrant. We were not the first entrant in the market in Europe. When you know you are in the business for the long term, the entry point is not very important.

AXA is very big in the asset management business also. Would you consider looking at that (mutual funds) in India?

We think there are possibilities. On the asset management side, we have very strong capabilities. We manage m1,100 billion. We have very good products. For us, looking at India is a natural thing. We have plans. We will be in a position to do something very quickly.

General insurance will be a natural extension for you...

Yes.

... but will you enter that business through a joint venture with Bharti Enterprises too?

We'll see; we have discussions going on. We are very happy to have a partnership with Bharti on the life insurance side. In our business, you need a very good understanding of the products, which I think we bring to the table. You need strong asset management capabilities. You need a very good understanding of the distribution. And you need a very good understanding of the local economy. I think Bharti is providing us what we do not have. They have a very good customer base. We are providing them what they do not have. I think it can be a very powerful combination.

I am sure you have studied the Indian insurance market closely, especially the private sector firms that entered around five years ago. Do you think they have done alright? Do you think everyone has missed a trick?

Nothing is ever done, finished, or over in any market. Over the last 17 years, I have heard people say, "Oh, it is too late to enter the market," or "The rankings are not going to change." Everything changes. The opening of the Indian market has been good for the customer and for the investor, because those companies willing to enter the market have taken a significant share in a relatively short period of time, around a third of the market. In comparison if you look at China, the new players (account) for less than 5 per cent of the market. Does that mean that there is no room for new entrants in India? We don't think so. We really think that the customer base is getting larger and is also getting more sophisticated.

To what extent do you think it is possible to innovate in the market? Several companies claim that the Insurance Regulatory Development Authority's regulations make it very difficult to offer a 'different' product.

In many places this is an excuse. Take the soap industry. Do you think any more innovations are possible in the soap industry? Some people would say, "No, never." Others would say, "Yes, everyday." Insurance is a very interesting industry; it is a combination of understanding risk and understanding financial markets. On those points, things are changing everyday. You have new risks everyday. You have new elements in the financial markets everyday. And with the evolution of technology, the ability to combine those things is changing everyday.

There is a change on the IT side, in computation capabilities. Ten years ago, most calculations of risk were done on a deterministic basis. You would put in your assumptions into the model, and what would come out was, in effect, the outcome of your assumptions. Today, with the growing capabilities of computers, what we can do to assess risks, is stochastic modelling. This is much more efficient. If this is not innovation, I don't know what is. So, when it comes to pricing products, you no longer price them the way you used to five, 10 years ago. This differentiation is available only to players who have the skills and the financial means. The small players will not have access to the intellectual and technological resources needed to do that. If you look at our insurance products, our asset management products, which we have been selling in the UK, the US and Australia, the content, in terms of research, in terms of technology is a very significant one.

AXA recently entered into an arrangement with the UN for insuring things like famines...

This goes back to the point about innovation in insurance. This is typically the sort of thing that was not seen as measurable insurable risk in the past. But maybe it is possible to do so, to pay out, against the payment of a premium, (a claim) if the number of days when there is no rain in a region is higher than X. In that case, it will mean the crops will fail, and so on. This is what we have structured with the UN.

This is what is interesting in this market. There are, in this business, risks that were not insurable 20 years ago that are now insurable, and everyday there are new risks. Take aids. When I joined the company, in 1989, everybody was saying this is not insurable. Now, it's insurable. It is just an aggravated risk, meaning it is more expensive to be insured if you are HIV positive than if you are not, but it is insurable.