An Agora Times report on the Indian Insurance Industry 2010…
In this article we discuss the Indian insurance market and the trends that will help companies in the United States evaluate how they can leverage from this untapped market.
The research has been conducted by the VA consulting team working with inputs from several insurance leaders in the Indian market that have worked with early entrants like Met Life,Guest Posting Zurich, ICICI and others.
Background to the Indian economy
Ever since the economy was opened up in 20 years ago India has been growing as an economy at nearly double digits.
As the working middle class becomes a sizable number the insurance industry has started growing at an incredible rate. It has grown over 200% since 2006. Even last year that insurance industry has grown by over 45%. Analysts predict the industry is going to grow at least 10% in 2010 to become a $42Billion industry. Even with this growth rate only 5% of the country is actually covered by any form of insurance.
The research has been conducted by the VA consulting team working with inputs from several insurance leaders in the Indian market that have worked with early entrants like Met Life, Zurich, ICICI and others.
There are insurance governing bodies have been formed and governing bodies have brought about a number of changes to standardize the insurance sector but more changes are expected especially in the personal and life area.
There are many factors to probe into as an investor or venturing into the Indian market. Our guidance to companies that are interested in entering the Indian market is:
The consumers as well as the investors should be focusing on the insurer’s financial strength and capability to meet ongoing responsibilities to its policyholders.
The fundamentals of the insurance company should be strong and should not indicate a poor investment opportunity as this might also deter growth.
Key FindingsTaking into account the changing socio-economic demographics, rate of GDP growth, changing consumer behavior and occurrences of natural calamities at regular intervals, the Indian life insurance market is expected to reach the value of around $42 Billion in the year 2010. The market is expected to grow at a CAGR of more than 200% YOY from the year 2006.
In 2006-07, pension premium contributed about 22.11% to total premium income of insurers.
Interestingly, the figure in the first nine months to December 2005 was 25.22%.In the non-life segment, the established players control 65% of the market. So it is their monthly performance that determines how the market as a whole would perform.
In Motor Insurance Business, Public sector covers almost 68% of the market value whereas the private sector just had 32% market share till September 2006.
In Accident Insurance Business, private sector players have almost 53% market share with ICICI Lombard as the lead player. Public sector players constitute about 47% market value with New India as the leading player followed by United India.
Overview of the market
The insurance business in India much like the US insurance industry is divided into four classes:1) Life Insurance business2) Fire3) Marine 4) Miscellaneous Insurance.Life Insurers transact life insurance business; the rest is transacted by General Insurers. No composites are permitted as per law at this time. This is being reviewed.The business of Insurance essentially means defraying risks attached to any activity over time (including life) and sharing the risks between various entities, both persons and organizations. Insurance companies (ICs) are important players in financial markets as they collect and invest large amounts of premium. Insurance products are multipurpose and offer the following benefits:1. Protection to the investors2. Accumulate savings3. Channelize savings into sectors needing huge long term investments. ICs receive, without much default, a steady cash stream of premium or contributions to pension plans. Various actuary studies and models enable them to predict, relatively accurately, their expected cash outflows. Liabilities of ICs being long-term or contingent in nature, liquidity is excellent and their investments are also long-term in nature. Since they offer more than the return on savings in the shape of life-cover to the investors, the rate of return guaranteed in their insurance policies is relatively low. Consequently, the need to seek high rates of returns on their investments is also low. The risk-return tradeoff is heavily tilted in favor of risk. As a combined result of all this, investments of insurance companies have been largely in bonds floated by GOI, PSUs, state governments, local bodies, corporate bodies and mortgages of long term nature. The last place where Insurance companies are expected to be over-active is bourses.
A recent trend of ICs is to venture into the pension and the mutual fund market. Life still constitutes a major share of the insurance business.
Insurance is a federal subject in India. The primary legislation that deals with insurance business in India is: Insurance Act, 1938, and Insurance Regulatory & Development Authority Act, 1999. The Insurance Industry has ombudsmen in 12 cities. Each ombudsman is empowered to redress customer grievances in respect of insurance contracts on personal lines where the insured amount is less than $45,000, in accordance with the Ombudsmen rule.Insurance Regulatory & Development Authority (IRDA)IRDA was constituted by an act of parliament. The Authority is a ten member team consisting of: (a) Chairman (b) five whole-time members (c) four part-time members (1) Subject to the provisions of Section 14 of IRDA Act, 1999 and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. (2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, – (a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; (b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; (c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;(d) specifying the code of conduct for surveyors and loss assessors; (e) promoting efficiency in the conduct of insurance business; (f) promoting and regulating professional organizations connected with the insurance and re-insurance business; (g) levying fees and other charges for carrying out the purposes of this Act; (h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business; (i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938);
(j) Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries;
(k) Regulating investment of funds by insurance companies;
(l) Regulating maintenance of margin of solvency;