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.
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.
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.
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).
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