Has Trust In Insurance Companies Reached A Peak Under Irdai's Leadership?
Life Insurance Today|January 2018

The General insurance industry was nationalized in 1972 and 107 insurers were grouped and amalgamated into four Companies - National Insurance Co. Ltd., The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd. and United India Insurance Co. Ltd.

Jagendra Kumar

The GIC was incorporated in the year 1972 and the other four companies became its subsidiaries. In November 2000, GIC was notified as the Indian Reinsurer, and its supervisory role over its subsidiaries was brought to an end. From 21 March 2003, GIC's role as a holding company of its subsidiaries also came to an end and the ownership of the subsidiaries was transferred to the Government of India. Today, out of 29 non-life insurance companies, there are six public sector insurers, which include two specialised insurers namely Agriculture Insurance Company Ltd for Crop Insurance and Export Credit Guarantee Corporation of India for Credit Insurance.

Moreover, there are 6 private sector insurers are registered to underwrite policies exclusively in Health, Personal Accident and Travel insurance segments. They are Star Health and Allied Insurance Company Ltd, Apollo Munich Health Insurance Company Ltd, Max Bupa Health Insurance Company Ltd, Religare Health Insurance Company Ltd and Cigna TTK Health Insurance and Aditya Birla Health Insurance Company Ltd. In the last financial year, the general insurance industry had seen a record growth of around 32%, largely due to the success of crop insurance.

The first quarter of FY 2017-18 has been good for the general insurance industry. The Indian general insurance industry is optimistic that it can sustain its high growth momentum for the rest of this financial year ending March 2018 (FY2018), after posting a 21.95% growth in gross direct premium underwritten in the April-June quarter. The nonlife sector reported gross direct premium of INR333 billion (US$5.2 billion) in the first three months of FY2018 compared with INR273 billion for the corresponding quarter last year.

The industry believes that a 20% growth can be sustainable even in the coming years. The central government's focus on crop insurance and the growing flow of household savings into financial assets would also contribute to growth. The data show that state-owned general insurers, including government - owned specialised insurers, reported gross premiums of INR168.6 billion for 1QFY 2018, an increase of 16% over the corresponding quarter last year. This represented a market share of 50.6%, down from 54.9% previously.

Industry participants are hopeful that even this year the industry would register growth of 18-20%. Though growth has been in the range of 15-20% in the first six months of the current fiscal and growth has been coming mainly from motor and health insurance, when there will be renewal for crop insurance in next few months, the industry will see higher growth. The general insurance sector has received around Rs 22,000 crore from crop insurance and this financial year industry players are hopeful that the number will be around Rs 32,000-35,000 crore from crop insurance.

In the years 1017-18, general insurance industry will see crop insurance and health insurance emerging as among the most important categories. Also, fire and motor insurance will continue to remain focus for general insurance industry. Public Sector companies have a bigger reliability factor because of them being under the control of the government. Even though the basic product remains the same, it is very difficult to actually find a drastic difference between the public and private sector companies.

Privately held general insurers chalked up gross premium income of INR 150 billion in the April-June quarter, an increase of 28% over the corresponding period last year. Standalone private health insurers' gross direct premium income underwritten stood at INR 14.5 billion in the April-June period, which was a growth of 44% per cent from INR 10.1 billion in the year ago quarter. In all, privately held insurers had a market share of 49.4% in 1QFY2018, higher than the 45.1% seen for the corresponding quarter last year.

Ease of doing business:

Insurance Laws (Amendment) Act, 2015 provides for enhancement of the Foreign Investment Cap in an Indian Insurance Company from 26% to an Explicitly Composite Limit of 49% with the safeguard of Indian Ownership and Control. Insurance penetration of India i.e. Premium collected by Indian insurers is 3.44% of GDP in FY 201516. Per capita premium underwritten i.e. insurance density in India during FY 2015-16 is US$ 54.7. The reasons that the insurance sector in India is under-penetrated and inadequately penetrated are: lack of awareness, low level of financial inclusion, and lack of trust in the system.

In addition, the support system is over-regulated and cost of compliance is high. Regulations are about input policing rather than being outcome based. The essential and prerequisite "Ease of Doing Business" framework has not been installed with vigour. The approach to public accountability is hesitant and tentative, and the level playing field imperative does not prevent a government entity from getting preferential treatment. The Indian insurance industry too has contributed to the current intrusive 'rule based' regulatory mechanisms. Insurance business has not been very successful in creating value, delivering returns below the cost of capital for years.

The non-life insurance industry has the highest combined ratio across developed and emerging countries, almost for the last 15 years. What one observes is that 'poor market conduct' leads to even more intrusive regulations - with the one feeding the other in a circular movement. The Indian insurance market though feels redeemed with the top lines and the gross premium increases, the growing number of policies across life/non-life sectors, and the investment-led rather than underwriting-led profits.

Digitisation of the databases of insurance companies, linking of insurance policies with personal identifiers such as Aadhaar, vehicle registration numbers etc. contribute to the growth. Technology is another tool that companies are betting on to lift their fortunes. Today motor, health and travel insurance policies are sold online. Policies are sold online or through agents, manufacturers and banks. But online sales are merely 3% compared to 30% in the US and UK. Disruption will come in the industry with companies focusing on pure online distribution.

Protection of policyholder's interest:

In the 17 years since the private sector general insurance companies were permitted to write policies, hardly anything changed for nearly a decade. Almost every company was reporting losses because of controlled pricing and the way claims were settled. But that may change for the better. New companies that are coming in will have very little to destabilise market dynamics when the industry is at Rs 1.25 lakh crore. Business means fulfilling customer's requirements. Companies that have the greater number of satisfied customers are more successful. Satisfying the customers with all the queries and solving all their issues ensures a healthy growth to any company. And a growth of unsatisfied customers is the sure indication of the closure of a business.

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