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, 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.
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.
Taking 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 business
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 investors
2. Accumulate savings
3. 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:
(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;
(m) Adjudication of disputes between insurers and intermediaries or insurance intermediaries;
(n) Supervising the functioning of the Tariff Advisory Committee; (o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause (f);
(p) Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and
(q) Exercising such other powers as may be prescribed
Tariff Advisory Committee (TAC) (Statutory Body under Insurance Act 1938): Tariff Advisory Committee controls and regulates the rates, advantages, terms and conditions that may be offered by insurers in respect of General Insurance Business relating to Fire, Marine (Hull), Motor, Engineering and Workmen Compensation.
Effective 22/07/98, the TAC Board has been reconstituted with seven members representing the present General Insurance Industry and eight members from government and Industry.
The Controller of Insurance cum Chairman IRDA is the Chairman of TAC.
List of major Insurance Companies in India (July 2010)
Insurance industry earlier comprised of only two state insurers.
Life Insurers ie Life Insurance Corporation of India (LIC) and General Insurers ie General Insurance Corporation of India (GIC) GIC had four subsidiary companies.
With effect from December 2000, these subsidiaries have been de-linked from parent company and made as an independent insurance company. These companies are Oriental Insurance Company Limited, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited.
The first batch of licenses was issued by the Insurance Regulatory and Development Authority (IRDA) in 2001. As on December 2009 following are the players in the Indian Market:
The total number of life insurers registered with the authority has gone up to 23. While, the total number of general insurers registered with IRDA are also now 23.
LIFE INSURERS IN INDIA:
Bajaj Allianz Life Insurance Company Limited
Birla Sun Life Insurance Co. Ltd
HDFC Standard Life Insurance Co. Ltd
ICICI Prudential Life Insurance Co. Ltd
India First Life Insurance Company Ltd
ING Visy Life Insurance Company Ltd.
Life Insurance Corporation of India
Max New York Life Insurance Co. Ltd
Met Life India Insurance Company Ltd.
Kodak Mahindra Old Mutual Life Insurance Limited
SBI Life Insurance Co. Ltd
Tata AIG Life Insurance Company Limited
Reliance Life Insurance Company Limited.
Aviva Life Insurance Company India Limited
Sahar India Life Insurance Co, Ltd.
Surinam Life Insurance Co, Ltd.
Bart AXA Life Insurance Company Ltd.
Future Generally India Life Insurance Company Limited
IDBI Fortis Life Insurance Company Ltd.
Canada HSBC Oriental Bank of Commerce Life Insurance Company Ltd.
Argon Reliquary Life Insurance Company Limited
DLF Parametrical Life Insurance Company Limited
Star Union Dai-Ichi Life Insurance Company Limited
REINSURERS IN INDIA:
GENERAL INSURANCE CORPORATION OF INDIA
Bajaj Allianz General Insurance Co. Ltd.
ICICI Lombard General Insurance Co. Ltd.
IFFCO Tokio General Insurance Co. Ltd.
National Insurance Co. Ltd.
The New India Assurance Co. Ltd.
The Oriental Insurance Co. Ltd.
Reliance General Insurance Co. Ltd.
Royal Sundaram Alliance Insurance Co. Ltd
Tata AIG General Insurance Co. Ltd.
United India Insurance Co. Ltd.
Cholamandalam MS General Insurance Co. Ltd.
HDFC ERGO General Insurance Co. Ltd.
Export Credit Guarantee Corporation of India Ltd.
Agriculture Insurance Co. of India Ltd.
Star Health and Allied Insurance Company Limited
Apollo DKV Insurance Company Limited
Future Generali India Insurance Company Limited
Universal Sompo General Insurance Co. Ltd.
Shriram General Insurance Company Limited
Bharti Axa General Insurance Company Limited
Raheja QBE General Insurance Company Limited
SBI General Insurance Company Limited
Max Bupa Health Insurance Company Limited
Policies and Guidelines
The Insurance Regulatory & Development Authority (IRDA) has issued revised guidelines licensing of corporate agents. IRDA has stipulated that the decision to engage any person as corporate agent will be taken only in the corporate office of the insurance company and proceedings appointing the person as corporate agent will be issued by an officer who will specially be designated by the chief executive officer to issue to such orders. Insurers have been directed to carry out ‘surprise inspections’ of the books and records of the group organizer or manager at least once a year to ensure total compliance.
IRDA has set a new deadline of December 2006 to complete the price deregulation system in the domestic general industry. Currently almost 70% of the general insurance market functions under the tariff system which is fixed by Tariff Advisory Committee (TAC), a constitutional body supervised by IRDA. The intention of such road map is to see that there is an orderly movement from the present regime to the future set up. While IRDA assumes that all lines of business would be de-tariffed, to start with it may be limited to lines other than motor in view of the sizeable share the motor premium commands in the overall premium collected by the insurers and the large number of policyholders involved in this lines of business.
IRDA has clarified, that the function of underwriting and rating of insurance business should be independent of the business development function and not be made subservient to the business development function.
Listed below is the list of popular insurance products in the Indian market
More than 80% of the life insurance business is from Endowment Assurance (Participating), and Money Back (Participating products).
Fire and Miscellaneous insurance businesses are predominant. Motor Vehicle insurance is compulsory.
New products have been launched by life insurers. These include linked-products.
Insurance products from the new insurance companies now give a lot more options to customers. New insurance products are more transparent, flexible & customized to the need of different types of individuals. Companies are providing “Free-look” period of 10 days where customer has the option of returning the policy within 10 days if it does not meet his requirements. Loading of riders to basic range of products & thus providing lots of flexibility to the customers is few of the examples.
Insurance Companies are now providing information about their performance on a regular interval to bring transparency in declaring bonuses.
The Insurance Regulatory and Development Authority (IRDA) has reported that every life insurance company registered under the IRDA (Registration of Indian Insurance Companies) Regulations, 2000, can transact life insurance business which includes ‘linked business’. After clearance from IRDA, the insurance companies must launch the products within three months from the date of clearance.
The number of new products cleared by the IRDA during the financial year 2009-10 in respect of private insurance companies was 236.
The middle and late 90s witnessed the tornado of financial reforms, deregulation, globalization etc., coupled with rapid revolution in communication technologies and evolution of novel concept of ‘convergence’ of computer and communication technologies, like Internet, mobile / cell phones etc. The evolution of IT services outsourcing in the Indian banks has presently moved on to the level of Facilities Management (FM). Banks now looking at business process management (BPM) to increase returns on investment, improve customer relationship management (CRM) and employee productivity. Despite this there is a large gap that needs to be filled in with cutting edge technology.
The Indian insurance industry is growing at a very rapid rate and is a great opportunity of companies to come in and take over significant portions of the market. These players will need to have an appetite for changes of a growing economy and a young market to be able gain from the benefits of these markets.
For further information on the Indian Insurance industry or to gain from the Indian advantage please feel free to contact us.
About Vantage Agora:
Vantage Agora (VA) is a global provider of back-office solutions, custom IT services and consulting services for companies in the insurance, finance, and healthcare sectors. As a SSAE 16 Type II audited company, Vantage Agora utilizes advanced data processing and quality control systems on a secured network to ensure efficient, comprehensive management of back-office functions such as insurance, accounting, financial and administrative tasks. Founded in 2004,Vantage Agora has offices in Cleveland and Dallas.