After clearance of Insurance Amendment Bill, India’s insurance sector is expected to grow even faster than the country’s overall economic growth, opening up new business avenues across the industry. With a large number of insurance providers already operating in the country, the Indian insurance industry has shown early signs of entering a consolidation phase, and an improved distribution infrastructure, the adoption of new channels and differentiated product offerings will continue to change the competitive landscape significantly.
India’s low life insurance penetration rate and the rising awareness of the need for insurance will be key growth factors in the Indian insurance industry. Favourable and new foreign investment policies along with increased capital-raising options will also create an environment for collaborations and joint ventures. India’s reinsurance market is also expected to continue growing, driven mainly by growth in non-life and accident and health insurance.
Overview – The Indian Insurance industry
Indian Insurance industry comprises of 52 insurance companies. Amongst these 24 are in life insurance business and 28 are non-life insurers
Out of 28 non-life insurance companies, five private sector insurers are registered to underwrite policies exclusively in health, personal accident and travel insurance segments. They are Star Health and Allied Insurance Company Ltd, Apollo Munich Health Insurance Company Ltd, Max Bupa Health Insurance Company Ltd, Religare Health Insurance Company Ltd and Cigna TTK Health Insurance Company Ltd. There are two more specialized insurers belonging to public sector, namely, Export Credit Guarantee Corporation of India for Credit Insurance and Agriculture Insurance Company Ltd for crop insurance.
Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. Among the non-life insurers there are six public sector insurers. In addition to these, there is sole national re-insurer, namely, General Insurance Corporation of India. Other stakeholders in Indian Insurance market include agents (individual and corporate), brokers, surveyors and third party administrators servicing health insurance claims.
India’s life insurance sector is the biggest in the world with about 36 crore policies which are expected to increase at a compound annual growth rate (CAGR) of 12-15 per cent over the next five years. The insurance industry plans to hike penetration levels to five per cent by 2020, and could top the US$ 1 trillion mark in the next seven years.
The total market size of India’s insurance sector is projected to touch US$ 350-400 billion by 2020 from US$ 66.4 billion in FY13.
The general insurance business in India is currently at Rs 77,000 crore (US$ 12.41 billion) premium per annum industry and is growing at a healthy rate of 17 per cent.
The Rs 12,606 crore (US$ 2.03 billion) domestic health insurance business accounts for about a quarter of the total non-life insurance business in the country.
Investment corpus in India’s pension sector is anticipated to cross US$ 1 trillion by 2025, following the passage of the Pension Fund Regulatory and Development Authority (PFRDA) Act 2013, according to a joint report by CII-EY on Pensions Business in India.
Indian insurance companies are expected to spend Rs 117 billion (US$ 1.88 billion) on IT products and services in 2014, an increase of five per cent from 2013, as per Gartner Inc. Also, insurance companies in the country could spend Rs 4.1 billion (US$ 66.11 million) on mobile devices in 2014, a rise of 35 per cent from 2013.
Insurance sector of India needs capital infusion of Rs 50,000 crore (US$ 8.06 billion) to expand, maintain a healthy capital base and improve solvency standards, according to Insurance Regulatory Development Authority (IRDA).
- Major investments and developments in the Indian insurance sector:
- Life Insurance Corp of India (LIC) has earmarked a total of around Rs 1 trillion (US$ 16.12 billion) for investments in bonds, including non-convertible debentures (NCDs), certificates of deposit (CDs), commercial papers (CPs) and collateralized borrowing and lending obligations (CBLOs), with primary focus on infrastructure and real estate in the year to March 31, 2015.
- Aditya Birla Financial Services Group has signed an agreement to form a health insurance joint venture (JV) with MMI Holdings of South Africa. The two will enter into a formal JV in which the foreign partner will hold a 26 per cent stake.
- South African financial services group Sanlam plans to increase stake in its Indian JV Shriram Life Insurance from 26 per cent to 49 per cent.
- JLT Independent plans to develop India as a service hub for all countries that are a part of South Asian Association for Regional Cooperation (SAARC), according to Mr Sanjay Radhakrishnan, CEO, JLT Independent.
- Kotak Mahindra Bank became the first bank to get the permission from Reserve Bank of India (RBI) to set up a wholly-owned non-life insurance company.
The Government of India has taken a number of initiatives to boost the insurance industry. Some of them are as follows:
The Reserve Bank of India (RBI) has allowed banks to become insurance brokers, permitting them to sell policies of different insurance firms subject to certain conditions.
- The select committee of the Rajya Sabha gave its approval, permitting 49 per cent composite foreign equity investment in insurance companies. A broad agreement has also been achieved with the states on most of the issues concerning the implementation of the single goods and services tax (GST), which is scheduled to be rolled out from April 1, 2016.
- The Government of India plans to implement a Rs 1,900 crore (US$ 306.41 million) e-governance project called ‘Panch Deep’ to automate transactions of the Employees State Insurance Corporation (ESIC), said Mr Bandaru Dattatreya, Union Minister for Labour and Employment with Independent Charge, Government of India. Under the project, enterprise resource planning (ERP) solution would be installed across the country which will give a unique card to the employees and facilitate clearance of third party bills.
- The Government of India plans to launch a new insurance scheme to protect farmers and their incomes against production and price risks.
- Under the Pradhan Mantri Jan Dhan Yojana, it has been decided that even those accounts which had been opened prior to August 28, 2014 and have zero balance will get Rs 100,000 (US$ 1,612.55) insurance cover.
- Road Ahead
- India’s insurable population is anticipated to touch 75 crore in 2020, with life expectancy reaching 74 years. Furthermore, life insurance is projected to comprise 35 per cent of total savings by the end of this decade, as against 26 per cent in 2009-10.
Demographic factors such as growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of Indian life insurance.
Exchange Rate Used: INR 1 = US$ 0.016 as on February 25, 2015