INSURING A BRIGHTER FUTURE
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The Indian insurance industry seems to be in a state of uncertainty. With severe problems like rising costs, slow growth, etc. impacting its performance, growth has been hard to come by. Ironically, India has the world’s largest insurance sector with about 36 crore policies. The hard fact though is that it still continues to be an under-penetrated market. The Indian insurance market need the skills and the expertise that foreign insurance companies provide. So the insurance companies have to really think through all the different alternatives. The insurance companies need to ensure that the product and services are available to all the people of India. The market today is primarily dependent on tax incentives and mandatory buying for its sales. A major reason for this sluggish growth is that there is a very little customer pull, and this can only be improved by growing financial awareness and an increase in savings and disposable income. India continues to be a country of savers though we have witnessed a decline in the household savings rate in the past couple of years. In India, the problem lies in household savings lying idle or getting invested in saving instruments, and that do not help them achieve their life stage goals. There is a worrying trend of larger portion of household savings getting into non-productive physical assets. Still, the industry has witnessed phases of rapid growth along with extent of growth moderation and intensifying competition.
Having said that, strong growth is expected in the insurance sector since the domestic economy is expected to grow steadily. The future looks interesting for the insurance industry with several changes in regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers The Narendra Modi-led government in July 2014 approved a proposal to relax foreign direct investment (FDI) in the domestic insurance sector up to 49 per cent from the previous 26 per cent; this was a signal to bring capital and investment into the sector. In fact, the sector has gone through transformational changes since the year 2000 when the industry was liberalised. The increasing number of players in this sector has resulted in new products, better packaging, improved customer service and most importantly, greater employment opportunities. From a single player market to 52 insurance companies, the industry has witnessed phases of rapid growth along with intensifying competition.
Of these 52 insurance companies, 24 are in the life insurance business and the rest operate in the non-life insurance segment. Among the life insurers, Life Insurance Corporation (LIC) is the only public sector company. As for non-life insurers, there are six public sector insurers. The other stakeholders in the Indian insurance market include agents and brokers. Interestingly, the life insurance sector has emerged as the most preferred investment option. Almost 70 per cent of the populace who hold investments other than cash has parked their money into life insurance.
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While the insurance industry is still struggling to move out of the dark shadows cast by several challenges, the powerful fundamentals of the industry are working well towards making a road-map for sustainable long-term growth. A well developed insurance sector is a boon for economic development of any country. India’s rapid rate of economic growth over the past decade has been one of the most significant developments in the global economy. Insurance is proving to be a bigger opportunity in India because of the growth in the country’s working population and many other aspects. Indian insurance industry has witnessed exceptional growth with participation of both public and private sectors players. This sector is not only providing a protective shield to the lives and assets of the country but is also helping in generating thousands of jobs and career opportunities. The growth of this particular sector depends on various other aspects like promoting innovation and removing inefficiency, growth of life and non-life industry, competition, etc. The sector is now being seen as moving towards a stable position with its market size projected to touch USD 350-400 billion by 2020 from USD 66.4 billion in FY13.
The latest prediction notes that a phenomenal rate of growth is likely to happen in the year 2015 and the factors that will contribute to this curve will include an increment in the country’s population and expected tax benefits. The most talked about factor of growth in this particular sector is the predicted economic growth as expected under the new government. Meanwhile, the biggest challenge for the industry or the companies in this sector is to make their products more meaningful to their customers. There should also be transparency in policy terms to gain the confidence of the customers. The insurance sector in India is one of the most booming sector of the economy and is growing at the rate of 15-20 per cent per annum. In India, insurance is a flourishing industry with several national and international players competing with each other. More and more companies are now emerging in the insurance sector. The economy of India is the eleventh largest in the world by nominal GDP and fourth largest by Purchasing Power Parity(PPP).
There are various emerging trends in the insurance industry like multi-distribution, which means increasing penetration through new modes of distribution such as the internet etc. Second is claim management, which means timely and efficient management of claims to prevent delays which can increase the claims cost.
The key challenges which are being faced by life insurers are product strategy and design, compensation, customer service, governance, and regulatory issues. The key factors for growth in the non-life insurance sector include distribution, health insurance, improved fraud control mechanisms, etc. Given that, the market now has its sights set on the Union Budget. A greater amount of FDI is on the wish list as it will infuse capital and foreign investment and also help the companies to invest in better administrative control and product innovations. The prospects for a better economic future has increased the confidence level of Indians, this is leading towards higher appetite for saving and investment products.
The Insurance Regulatory Development Authority (IRDA) believes that the country’s insurance sector needs capital infusion of Rs 50,000 crore (USD 8.08 billion) to maintain a healthy capital base. Meanwhile, the Union Cabinet has cleared a bill to raise foreign investment in private insurance companies from 26 per cent to 49 per cent. The 49 per cent cap would include both FDI and foreign portfolio investments. The government is working towards attracting investments. The centre is also planning to launch a new insurance scheme for farmers in order to protect their incomes against price and production risks. All this should bode well for the sector in the coming years.
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‘INDIAN INSURANCE INDUSTRY HAS VAST UNTAPPED POTENTIAL AHEAD OF IT’
From four players in 2000 to 28 in 2014, the Indian insurance industry has clocked an impressive 13 per cent year-on-year growth in its premium earnings. And there are better days ahead with the industry’s proactive stand on spreading awareness about the benefits of insurance across all strata of society, says Ashok Kumar Roy, CMD, GIC Re
Today the world is seeing India with immense hope and optimism. We are now at a cusp where we have a large digitally enabled and connected middle-class that seeks growth and change. The process of economic liberalisation has facilitated us to indeed become a ‘miracle economy’. Our economy is well-equipped to withstand any shocks and tremors. Our foreign exchange reserves have been steadily increasing and the Indian rupee has also stabilised. The Indian stock markets are also blazing a healthy trail and are among the top performers of 2014. Our foreign funds inflows are indeed encouraging and fiscal deficit and inflation are on a slide down.
Demographically too we are at an advantage today. We are a nation of young and will continue to be so for quite some time in the future. By 2020 we are expected to be 1.3 billion and 60 per cent of these (around 780 million) are expected to be in the productive age group of 15 to 59. With Prime Minister Narendra Modi’s national mission for financial inclusion - Jan Dhan - the ambit of financial services, including banking, insurance, pension and credit, has expanded to over 11 crore persons up to January 13, 2015 after its launch in August 2014.
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Wide Scope Ahead
The Indian insurance market has also become attractive for global players. From four players in 2000 to 28 in 2014, it has clocked an impressive 13 per cent year-on-year growth in its premium earnings. And there is lots of hope for the future ahead. Today the Indian market is flush with opportunities for anyone who can feel the pulse of the customer, insurance market included. The Indian insurance industry has a vast untapped potential ahead of it and is at a very interesting phase at present. Rural India is in an overdrive and spending on education, health, housing and better lifestyle takes precedence over all others. Even the bottom of the pyramid section of society is not left untouched by the insurance sector as several government-sponsored insurance schemes have brought them under some kind of cover.
The retail customer has become more aware and involved with what he wants and what he gets. Retail lines like motor and health are leading the growth rally of the Indian non-life insurance market. However, there is still a lack of clarity and trust for the insured besides lack of awareness about the insurance products and services available. Due to this, price becomes a differentiator and the insurers, in an effort to shore up their toplines, are ready to cut prices to any extent, which tells upon the health of the industry as a whole. The Indian insurance market is characterised by low insurance penetration, rising losses due to natural disasters, improving living standards, and rise in social aspirations.
Challenges and Solutions
Meanwhile, we have had our fair share of natural catastrophes during the year – floods in Kashmir, the Hudhud cyclone, landslide in Pune, and many more. The year 2013 too had the Uttarakhand floods and the cyclone Phailin. In India, almost 85-90 per cent of the losses that these or other similar catastrophic events cause are uninsured. This gap between the insured losses and economic losses needs to be bridged. The insurance penetration especially that of non-life insurance has to be increased substantially.
Also, as we develop we are bound to create newer risks and exposures. Cybercrimes and liability are a case in point. The effects of climate change lead to increasingly frequent and ferocious natural catastrophes and we need to not only provide insurance cover to these emerging risks but also need to work out innovative solutions to tackle these risks. Going ahead the Indian insurance industry will need to improve the quality of its database and also encourage sharing of data across industry. This would require standardisation which is really not happening at the pace warranted. The real-time analysis of risk accumulations and exposures is a desirable goal. Also, the country needs to be intensively modelled for all natural catastrophe perils.
The availability of good quality human resource and talent to sustain the growth opportunity is a great challenge as we are a service industry and manpower is a critical component of any service industry, especially the financial industry. The industry needs to relook and revisit its manpower planning strategies. We the insurers and reinsurers can also help societies to adapt; become more resilient to extreme events by discouraging construction activities in high-risk areas; and collect data on the economic cost of catastrophic events that could sensitize the public at large. Last but not the least, we must incentivize loss prevention and risk transfer mechanisms. It is important to let people know that to be insured is much cheaper and wiser in the long run than to be uninsured. It is important to communicate this message to the target audience.
Role of GIC Re
GIC Re has also repositioned itself to empower the domestic market by associating with all the non-life and life insurance companies in a very constructive manner. We provide them the support they require, and share our experiences with them. Being a fully-owned Government of India organisation and with strong financials, experienced manpower, and the zeal to reach new heights, GIC Re during 2013-14 earned a gross premium of Rs 14,680 crore and posted a profit after tax of Rs 2,253 crore. Dividend for the year 2013-14 was at 104.5 per cent, amounting to Rs 449.35 crore. Productivity and profitability per employee in GIC Re is also amongst the highest in the world. In terms of 2013-14 financial results, the productivity per employee stood at Rs 28.56 crore and profitability per employee was Rs 4.48 crore.
The passing of the insurance ordinance is also expected to bring radical changes in the existing scenario. It is also expected that the country will see good practices being brought in the domestic insurance industry and some new products as well. However, low insurance penetration and the growing spectre of catastrophes and disasters should spur us to adopt a proactive strategy to bring all players on the same table to promote insurance as a tool for disaster management. It is the need of the hour. It calls for dedicated teamwork on part of the insurance industry and accept the challenge to transform for its own growth and prosperity and that of the nation. And we believe we are ready.
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Leadership & Beyond
The insurance sector has spread far and wide with the entry of private players but despite the intense competition a PSU like The New India Assurance Co. has continue to post impressive growth year after year. In this interview, CMD G. Srinivasan elaborates upon the role played by the company so far and the road ahead
What role do general insurance companies like New India Assurance play in the overall development of the country
We play the role of principal risk carriers to industry and commerce. No investment in a business venture is possible without the insured protection of assets and activities. Further, we also off er personal life protection through our health and travel insurance policies. We not only provide damage cover for motor vehicles but also cater to the statutory liabilities that the law mandates. A huge amount of vehicle insurance claims filed in MACT courts across the country are being handled by us and crores of rupees by way of compensation reach the dependents of those who have lost their lives and also to survivors to help recreate lives and the way ahead.
We are a leading institutional investor, channeling premium collection to productive areas of infrastructure, housing, and rural development. We also are an active participant in the debt and equity market. We provide solace and support to those affected during natural catastrophes by setting up claims’ clearance camps and relaxing documentation require ments to ensure that these claims are settled at maximum speed. This helps brings the economy back on rails in devastated areas. Though we have more than 170 products catering to almost every area of risk in the country, we are constantly innovating to provide solutions to emerging complex needs as India moves high er in the chain of global economy. No new investment is possible without robust insurance support as mandated by foreign investors and lenders.
We are at the cutting edge of this with our global operations, almost 100 years of business experience, and relationships with reinsurers across the world. Our work in reinsurance operations enables the economy to endure shocks and continue ahead. Huge oil and energy manufacturing complexes would not exist if we were not to spread the risk to inter national markets. Th rough creating and sustaining an insurance ecosystem, we also contribute in providing direct and indirect employment to thousands of people.
How is the company expected to fare during the current fiscal in terms of new premium business and overall operations?
We are doing rather well in the current year in terms of business growth and volumes, wealth creation, and profitability. AM Best has retained our A- (excellent stable) rating and CRISIL has given us an AAA rating. Our internal parameters on claims settlement ratio and operational efficiencies have been doing well. We have set a target of global business of `16,000 crore. We have been growing above the market consistently for many quarters.
Will there be any impact of the government’s ordinance to amend the Insurance Act? Will it help increase the FDI limit and thus benefit the sector?
At New India Assurance we are ready for meeting any sort of challenges that the new FDI norms would throw up. Having said that we are constantly re-engineering and simplifying our customer connect points and processes. We would like to position ourselves as a company which is easy to do business with.
What is the future vision of the company?
We have adopted the tag line ‘Leadership and Beyond’ and this reflects the company’s aspirations and objectives. We would like to lead the market into new frontiers not only in India but also in more countries abroad. Though we are already present in 22 countries, we are seeking to enter more markets. In India we are determined that we will grow ahead of the market in all parameters. By increasing our presence, network, digital capabilities and human resources, we expect to be ahead even when new FDI players come calling. We wish to be a major Indian multinational in the Indian financial services sector with a robust brand equity and huge customer confidence.