India:Headwinds to blow in insurance market

The insurance industry in India is expecting some headwinds shortly because of a number of new developments in the sector.

Mr Kapil Mehta, co-founder and CEO of the insurance broking firm, SecureNow, points out in an article written for Livemint that all bank accounts need to be linked to Aadhaar by 31 March 2018 to remain operational. However, over the years, the Electronic Clearing Service (ECS) mandate has been used widely by the industry to collect renewal premiums automatically.

He wrote: “If these ECS mandates become invalid because of the lack of Aadhaar linkage, there could be substantial unintended insurance lapses, which would be terrible for policyholders.”

Aadhaar is a 12-digit unique identity number issued to all Indian residents based on their biometric and demographic data. The identification system was envisioned to link people to welfare schemes and to promote financial inclusion.

Another development that would have significant implications for the insurance sector is the introduction of the National Health Protection Scheme (NHPS).

Mr Mehta wrote: “There are many cost estimates but my assessment is that the scheme will cost far more than what is budgeted for. Most likely, this scheme will be larger than the entire health insurance industry today. When fully implemented, it will mean that over 10 million more people may want to be hospitalised in private hospitals. Health insurers and hospitals will need to significantly scale up to participate in this scheme and ensure that they are a part of the government’s implementation plan.”

The NHPS was announced in the 1 February Budget speech for the fiscal year starting 1 April. Under it, the government plans to provide health cover of INR500,000 per family to 100 million families in India, which is about 500 million people or 40% of the population. The central government has allocated INR20 billion (US$310 million) in the Budget for the scheme. It will share funding of the scheme on a 60-40 basis with state governments.

Mr Mehta also said that the large number of current and proposed public listings of insurance companies suggests that scrutiny of an insurer’s financial performance is likely to increase significantly.

He said: “The markets will look carefully for the source of profits. In the case of general insurers, this is typically due to investment rather than underwriting. Such scrutiny will put pressure on insurers to increase premiums, which in turn, will impact customers.”