India's Insurance Sector
INDIA is the 5th largest market in Asia by premium following Japan, Korea, China and Taiwan. The US$ 30 billion insurance business in India is expected to grow 17 per cent in fiscal 2008-09* if the country’s economy clocks 7.6 percent GDP. In fiscal 2007-08 life insurers grew their business by 23.3 percent to Rs.930 billion while general insurers posted growth of about 14 percent in premium income to Rs 298 billion. Presently the total number of insurers registered with the Insurance Regulatory and Development Authority (IRDA) stands at 42 : 21 in life insurance and 21 in general insurance segments. Some joint ventures include Tata AIG, Bajaj Allianz, ICICI Prudential, SBI Life, HDFC Standard Life, Birla Sunlife, Max New York Life and Bharti AXA Life.
India is the fifth-largest country in Asia in terms of total insurance premium. The premium income in the country increased to 4.7 percent of GDP in fiscal 2006-07 from 3.3 percent in the fiscal 2002-03.Total premium in the insurance industry grew at a CAGR of 28.1 percent during the same period. The life insurance sector grew at a CAGR of 29.3 percent outsmarting the general insurance sector’s CAGR of 21.3 percent.
The Indian insurance sector has a turnover of around Rs 26,287 crore. The current FDI in this sector stands at around Rs 2500 crore and market experts expects FDI to zoom by about 2.5 times once the FDI cap is raised by another 23 percent to 49 percent.
The terror Pool, set up after 9/11 attacks, and being funded by the insurers currently has a corpus of Rs 1000 crore. The settlement of the claims for Taj, trindent and Oberoi amounting to Rs 500 crore could be well taken care of. The urrent coverage is till March 31, 2009. It is expected with renewals for next fiscal year, the Terror Pool fund will increase substantially. General Insurance Corporation (GIC), the Indian reinsurer, is planning to rise terrorism insurance cover to Rs 1000 crore from Rs 750 crore. Currently any claim beyond Rs 750 crore is covered by international insurers.
Meanwhile, on the expected line of foreign investors, the Congress(I)-led UPA government in New Delhi has introduced the Insurance Laws (Amendment) Bill 2008 in the upper house of Indian Parliament on December 22, 2008 that seeks to raise the Foreign Direct Invest (FDI) cap in the insurance sector from existing 26 percent to 49 percent. The government move is seen as the UPA government’s most significant and biggest reform measure in the financial sector since the then Finance minister P. Chidambaram in his Budget speech announced plan to hike FDI in insurance to 49 percent.
The Bill, once through in both houses of Parliament, will allow companies, exclusively into the business of health insurance, to operate with a minimum paid up capital of Rs 50 crore against the current minimum paid up capital of Rs 100 crore for any insurance business- Life or General. For re-insurance business the minimum paid-up capital will be Rs 200 crore. The Bill when translated into an Act would enable all the state-run general insurance companies- Oriental Insurance, New India Assurance, United India Insurance and National Insurance – to enter the capital market to mop up funds.
The Bill also seeks to allow Lloyd’s of London to enter Indian insurance market as a foreign company in joint venture partnership with local companies. The insurance regulatory body- IRDA, would chart the terms and conditions for cancellation of registration. Business without registration will invite fine up to Rs 25 crore. For not meeting the obligations for rural or social sector or third party insurance of motor vehicles, fine up to Rs 25 crore will be slapped.
According to the Bill, no insurance policy can be challenged after a gap of five years. It will protect the interest of policy holders against any possible litigation.
Besides Insurance Law (Amendment) Bill 2008, the government has also introduced another Bill namely, Life Insurance Corporation (Amendment) Bill to raise its capital from existing Rs 5 crore to Rs 100 crore. This would enable LIC comply with IRDA norms.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has
projected that foreign direct investment (FDIs) will increase in insurance
sector by $ 0.46 billion in next 2 years and likely to touch $ 0.96 billion
as it is still regulated. A Paper on FDI’s Prospects in Insurance Sector
brought out by the ASSOCHAM says that currently the total insurance market
in India is about $ 30 billion, in which the element of FDI’s is $ 0.5
billion. This is 1.6 percent of total insurance business in India.
Since end of 2000 when insurance was privatized, life insurance company promoters pumped in Rs 21,000 crore so far. The distribution network also expanded significantly. In the second quarter of fiscal 2008-09 1480 branches were added including 1293 branches set up by private sector life insurers. During this period the life industry added 53332 employees to their payrolls. The number of pay-roll employees now crossing over 300,000. Of the total 10,037 branches of life insurance companies around 7,000 are in semi urban and rural areas. By the end of 1st quarter of current fiscal (2008-09) the total assets of the life insurance companies stood at Rs 857,500 crore. Of this, Unit Linked Policies ( ULIP) accounts for Rs 140,000 crore. The total premium of all insurance companies taken together aggregated to Rs 86,500 crore in the first half of current fiscal.
Yet another highly prospective business segment is health insurance. According to a CII-E&Y study report, the health insurance premium
is likely to touch Rs 30,000 crore in 2015 from the existing Rs 4,000 crore. The premium was Rs 670 crore in fiscal 2001-02. It is expected that the hike in FDI for the insurance sector from 26 percent to 49 percent will boost the healthcare business.
immense business potential in health sector is reflected in the fact that
only about 1 percent of the country’s population is presently covered
under health insurance policies. The fillip to the health insurance segment
will also come when the Insurance Regulatory and Development Authority’s
(IRDA) recommendation to bring down capital requirements for stand-alone
health insurance companies from Rs 100 crore to Rs 50 crore. In fact,
the Insurance Laws (Amendment) Bill 2008 makes provision to allow companies,
exclusively into the business of health insurance, to operate with a minimum
paid up capital of Rs 50 crore against the current minimum paid up capital
of Rs 100 crore for any insurance business- Life or General. This is expected
to prompt entry of more health insurance companies into the country.
health expenditure across the country was Rs 180,000 crore in 2007. With
healthcare costs escalation, rising demand for healthcare services and
limited access of the low-income group to quality healthcare, health insurance
is emerging as an alternative mechanism for financing healthcare. And
with merely 12 percent of the population being covered, companies are
looking at the health insurance space as a lucrative segment.
Commenting on the prospect of the general insurance industry in India a Moody’s-ICRA report on Indian General Insurance Industry Outlook said: The outlook for the general insurance industry in India is stable based on Moody’s expectations for steady fundamental credit conditions in the sector over the next 12-18 months. With the Indian economy forecast to grow at 7.5% in 2008 and given rising income levels and higher risk awareness among insureds, the country’s insurers are optimistic about demand for their products. However, intense competition from new entrants, deregulation and a moderation in returns from the equities market will pressure pricing and ultimately short-term profitability.”
“At the same time, despite rising inflation and a severe correction in the stock market (the key Sensex index fell 26% in 1Q2008), the prevailing view in Asia is that while China and India are not insulated from the credit crisis afflicting the US and EU, domestic demand is strong enough to support GDP growth1. Being less export dependent, India is also less vulnerable than some of its neighbors”, the Report pointed out.
According to Moody’s-ICRA report published in April 2008, “Rising income levels, low penetration for most consumer products, availability of financing and changes in lifestyles/ aspirations are likely to sustain consumer demand over the next few years. In the short term, the focus on infrastructure development will keep the economy going, even if the tightening in credit leads to a slowdown in consumer spending.”
“Furthermore, over the medium and long term, India’s insurance market will continue to experience major changes as its operating environment increasingly deregulates. On the one hand, a mix of new products, new delivery systems and a greater awareness of risk will generate growth. On the other hand, competition will remain intense as private sector insurers and those about to enter India seek to win market share from the more established public sector entities,” the report indicated.
*India’s fiscal year is April to March