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Indian Insurance in 2020—Targeting the Under-Served

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India’s general insurance industry has been remarkably productive in terms of growth, innovations and reforms in the year 2016. The General insurance market direct premium up to the month of January 2017 is at Rs 12,123.51 crore and at a percentage growth of 31.68 percent.

Even as these numbers appear impressive, the reality is that India accounts for 17 per­cent of the global population but less than 1.5 percent of the total insurance premia collected globally. Even as India is the world’s 15th largest insurance market (by premium volume), its insurance density (per capita premium) stands at Rs 3,696 vis-à-vis the global average of around Rs 44,486.

Government and Regulator Initiatives

The Government of India announced a number of initiatives over the last couple of years to strengthen the country’s insurance sector. Foreign investments were permitted through the automatic route up to 49 per­cent. Service tax on single premium annuity policies was reduced from 3.5 percent to 1.4 percent of the premium paid in certain cas­es. The Pradhan Mantri Suraksha Bima Yo­jana and the Pradhan Mantri Jeevan Jyoti Bima Yojana offered basic insurance at minimal rates through government agen­cies and private sector outlets. The Govern­ment launched an insurance pool of Rs 1,500 crore (mandatory under the Civil Lia­bility for Nuclear Damage Act) to provide civil liability for nuclear damage and prompt compensation to the victims of a nuclear incident through a no-fault liability to the operator.

Moreover, the Government has planned to launch Bharatiya Krishi Bima Yojana, an all-in-one insurance scheme for farmers (com­prising crop insurance, health cover, person­al accident insurance, livestock insurance, insurance cover for agricultural implements like tractors and pump sets, student safety insurance and life insurance). In future, these schemes will play a vital role in im­proving the business of private players in the rural market. They will require companies to cater to the needs of the rural and economi­cally backward population of the country through unique and customized solutions via easy and accessible distribution models.

The Insurance Regulatory and Development Authority (IRDA), the regulator of the coun­try’s insurance sector, undertook decisive measures through the formation of two com­mittees to promote e-commerce and finan­cial inclusion. Initiatives, such as e-insurance account and accidental insurance cover for train passengers have had a positive impact towards the growth of the sector. Through e-account, the customers are empowered to maintain their insurance policies in an easy, speedy and efficient manner. The formula­tion of IRDA Regulations, 2015, in line with the amendments made under Section 32 B of the Insurance Laws (Amendment) Act, 2015, will also help in extending insurance cover to the economically-weaker sections.

Economic reforms such as demonetization, Jan Dhan accounts, Unified Payment Inter­face (UPI) and Aadhaar integration have set the ground for a digital and cashless econo­my. Such a digital revolution is set to im­pact the value proposition of insurance ser­vices too. For instance, the need for strategic changes in developing a more rele­vant and better digital distribution model has become inevitable.

Though digital distribution of policy is chal­lenging due to our existing IT infrastruc­ture, a high level of digital illiteracy and limited connectivity in remote areas, it has its own benefits. It offers easy and faster policy issuance and improved penetration in the market. Therefore, looking at the im­mediate need to increase our market share in the global scenario, there is a greater need for a shift in our focus from the con­ventional method of policy selling to an ad­vanced and faster method.

Leveraging Technology

Technology is the key driver of the massive transformation that the Indian insurance sector is currently undergoing. It is expected to play a vital role in not just developing newer distribution models but also in im­proving customers’ experience and the way companies serve them. The company’s abili­ty to serve its customers in a simpler, smart­er and faster manner will define its rate of customer retention and level of market pen­etration. In future, insurers must be pre­pared to invest in relevant technology and to serve their customers in real-time by pro­viding immediate solutions to their issues.

Customers’ Delight

As the balance of power shifts slowly to­wards the customers, the growing demand in the sector will be to develop specific solutions tailored to meet their unique re­quirements. In the future, customers will seek to be increasingly empowered. They will want to arrive at their own decisions and solve their issues based on gathered in­sights, and not just through the convention­al method of being serviced and advised. Therefore, it will be an insurer’s responsi­bility to focus on the customers’ delight and empower them with innovative solutions and services.

Profitable Growth in an Aggres­sive Marketplace

Challenges in the insurance market made it hard to achieve profitable growth as players were required to address a complex distri­bution system, outdated IT systems, ineffi­cient business processes, competitive pres­sures, growth needs and cost management. The fulfillment of shareholder expectations warranted a delicate balance between prof­itability and risk. To achieve long-term suc­cess, insurers need a more customer-centric approach: understand customers better, en­hance customer delight and optimize cus­tomer value through cross-sale opportuni­ties.

Demographic Dividend

India currently has 605 million people be­low the age of 25, and 225 million in the age group 10-19 poised for higher educa­tion. This indicates that for the next 40 years, India can enjoy the benefits of a youthful, dynamic and productive work­force even as the rest of the world, includ­ing China, continues to age.

By 2020, India will have 116 million work­ers in the work-starting age bracket of 20 to 24 years, compared to China’s 94 million. The average Indian age by 2020 will be 29 years as against 40 years in the US, 46 years in Europe and 47 years in Japan. Even as the labor force declines by 4 percent in the industrialized world and by 5 percent in China in 20 years, it could increase by 32 percent in India. The result is that that In­dia’s demographic dividend has the poten­tial to add significantly to India’s per capita GDP growth across two decades (Sources: NDTV, ILO, IMF).

Outlook

The corpus of global insurance premia could grow around 4 percent during the next two years (3 percent in real terms, ad­justed for inflation), even as the Indian in­surance sector grows by 15 percent each year. Going ahead, India’s insurable popula­tion is anticipated to touch 750 million by 2020 with a life expectancy of 74 years. De­mographic factors like a growing mid­dle-class, a young, insurable population and increasing awareness could catalyze growth of the sector. Besides, the increased entry of large global insurance brands (following an increase in the FDI cap to 49 percent) could widen the size and prospects of the sector.

In conclusion, the rise in the insurance sec­tor will be marked by a favorable demogra­phy, penetration opportunities, relevant technology, financial inclusion and rising financial literacy. To tap the penetration op­portunities and increase profitability, the focus should be on retail segments like mo­tor, individual, health, as well as SME seg­ments through agents, bank assurance prod­ucts and banking correspondents. Additionally, for rural penetration opportu­nities, there is a need for large scale tie-ups with common service centers and public sector banks for distribution of micro insur­ance products.

In the years to come, ease of insurance por­tability, competitive e-policy pricing and customized health insurance policies are expected to fuel the growth of the sector. The only way to benefit from these changes is to embrace them, prepare for them and to be equipped to respond effectively to them.

Article written by Mr K G Krishnamoorthy Rao, Managing Director & CEO, Future Generali India Insurance Company Limited

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