We are at the tipping point of exponential and prudent growth as an industry. Last year saw the landmark listing of multiple Indian insurance companies and India’s national reinsurer hitting the capital markets for the first time. The successful listing reflected the growth that the general insurance industry has seen over the last decade, which has collectively raked over Rs 25,000 crore.
The Indian insurance industry is viewed globally as one of the most promising markets with the largest young insurable population and growing awareness of the need for protection and social security. The industry is set to grow with a multitude of factors such as structural rise in financial savings (as a percentage of household savings), high protection gap and rapid penetration of digitisation. Asset purchase has gone up and with a growing economy, people are able to hit their financial goals, thus the focus is now on protecting these hard-earned assets.
Privatisation of the insurance industry in 2000 opened the sector to private enterprises and allowed Indian companies to partner with foreign establishments. The development invited more insurance companies to come in and, therefore, the products, services kept evolving in a bid to be the best for the customers. All these years, a series of development-oriented regulatory initiatives under the Insurance Regulatory and Development Authority of India (Irdai) and digital interventions have helped in redefining insurance products, services and the industry itself.
The entry of new private companies and de-tariffication has spurred competition and innovation in products and distribution and choice for customers, with the industry growing at a compounded annual growth rate (CAGR) of around 20% every year to Rs 1.25 trillion with 33 non-life insurers in the market. However, profitability in the industry has taken a major hit with competition for the existing pie intensifying between insurers and premium rates in most classes taking a dip with the softening, resulting in price wars, a war that no one wins. The Indian general insurance industry has the highest combined ratio, a key industry parameter to measure profitability, across developed and other developing economies and is excessively dependent on investment income to make up losses from its core underwriting business. In several segments, equitable premium is not being charged for the risks covered and the risk selection criteria is not always prudent.
According to industry statistics, during 2016-17, the total underwriting loss and combined ratio for the general insurance industry jumped to Rs 18,968 crore and 121.33%, respectively, as compared to Rs 14,494 crore and 118.4% in 2015-16. Despite the high combined ratio in the industry, however, insurance in India is largely perceived as a push product, a notion that needs to change given its benefits of providing a financial security net. The perception of general insurance companies is negative among the population, and for an industry that pays claims to the point of making huge underwriting losses, it seems bizarre. Maybe the industry needs a prudent and customer-centric makeover.
Refreshingly, with the public listing of insurers, profitability has taken centre stage with actions in terms of cutting their loss ratios and expenses, as accountability extends from insurance regulator Irdai to capital markets regulator Securities and Exchange Board of India (Sebi), shareholders, investors and the society in general. There are hopes of improving pricing scenarios in the general insurance industry. Listing is also a major step towards improving disclosure standards, accountability, efficiency and ensuring greater transparency, which will definitely add to a more robust and healthier industry. The good amount of capital influx into the sector that comes in through listing will boost better investments in technology and modernisation of the industry through technologies. Investments like these can help the industry redefine the entire insurance experience, including the purchase, claim settlement, engagement and empowering consumers and insurers together. It looks like a win-win situation for both customers and insurers.
Continued losses in the coming future will affect the end consumers since it may result in laxity in claims management or towards investments on initiatives for innovation and better quality of products and services. This will not be the case if insurers can write sustainable business and fund their business growth and customer service innovations by generating profits. A good disciplined business environment is, therefore, always good for consumers and listing is creating this environment and will also set precedents for writing the business fundamentally right. Risk-based pricing and not succumbing to market pressure will be beneficial for the industry in the long run.
Ensuring profits through disciplined underwriting and a healthy solvency ratio will be critical to ensure sustainable growth for the industry and to provide good return on capital to shareholders. This will also require companies to reassess several key aspects of their business models, right from pricing to products, distribution, risk management, claims management and adoption of technologies for a stellar customer experience.
While insurance has been in India since as early as 1800, its benefits are yet to reach the masses. Retail penetration for non-life insurance is just 3%. With the initial public offer (lPO) buzz, awareness for insurance purchase will also be spurred among retail customers.
Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance