Market Research report - Insurance in India

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CS Market Research report

Country:  India

Sector:  Insurance (INS)

 

Summary 

 

Indian insurance industry is expanding rapidly.  The Government of India (GOI) owned Life Insurance Corporation of India and the subsidiaries of the General Insurance Corporation of India were organizations offering insurance products in India until 2000 when the GOI allowed private sector participation in the insurance industry.  Now, fourteen firms in the life insurance sector and equal number of ventures in the non-life sector compete in the domestic market offering new insurance products.   Insurance Regulatory and Development Authority (IRDA) acts as a watchdog for maintaining best practices in the Indian insurance industry.  The Government of India encourages private sector participation in the Indian insurance industry.  

                                                   

Market Overview     

 

The Government of India (GOI) owned Life Insurance Corporation of India (LIC) and four subsidiaries of the General Insurance Corporation of India (GIC) were the only life and non-life insurance providers in India until 2000.  The GOI opened up the Indian insurance sector to the private sector participation effective April 2000.  Several Indian private firms in partnership with foreign firms have entered the market offering new insurance products.  Today, about 14 firms are in the life insurance sector and equal number of firms is successfully operating in the non-life insurance sector. 

 

The Indian insurance sector has been successfully offering new products to individuals and households in the past.  Private insurance companies are competing with the GOI firms with new products and efficient services.  This forced the GOI owned insurance firms to introduce new products and enhance the client service to retain their market share in the country.  For example, when the GOI announced weather insurance in the annual budget for 2004-05, a private sector insurance company immediately introduced the program.  Non-life insurance firms have also introduced mutual fund package policy, pollution liability package policy, export credit (short term) policy, just to mention a few, new product offerings in the country.  

 

The Indian insurance sector has been a major contributor to the domestic savings in the country.  The overall growth of the Indian insurance industry in the past years has been exceedingly good.  Global insurance firms in partnership with Indian private sector companies have been actively marketing their products.  Insurance ventures in India continue to be optimistic of the future, given the large population, particularly the uninsured population. 

 

India accounts for just 0.59 per cent of the $2,940 billion global insurance market.  Published information project that the Indian insurance industry has a potential to grow over 125 per cent in the next ten years.  Growth in the life insurance sector is expected to be faster than the non-life sector. 

 

Both the GOI owned and private sector insurance firms have been developing strategies to improve the market penetration of their products.  Vast majority of the rural Indians form the target group for the insurance firms, particularly the non-life insurance.  Custom-designed products are being developed to lure the large rural population.

 

Out of fourteen private companies in the life insurance sector, twelve firms have reported losses during the first four years of operation.  But these firms have projected the revenue losses at the time of entry.  Many firms are bringing additional funds to meet the operational needs, including declaring bonus to the policyholders. 

 

Non-life insurance firms have clocked profits during the past years.  A review of eight firms in the non-life insurance indicated that they could make profits during the second/third year of operation. 

 

The General Insurance Corporation of India acts as the national re-insurer.  Individual insurance firms are free to make placements abroad, especially in the energy, aviation, and petrochemical risks, if the local reinsurance terms do not meet their requirements.  This resulted in the under utilization of local capacity and loss of premium and foreign exchange to foreign re-insurers.  Industry contacts believe that there is opportunity for foreign firms to enter the Indian market with re-insurance programs. 

 

Demand for the insurance agents to market the product offerings continues to increase from the GOI owned and private sector insurance ventures.  The number of licenses issued as of November 30, 2004, was 1,841,319 and this number is expected to increase further in the coming years. 

 

Insurance companies both in life and non-life sectors are making efforts to publicize their product offerings widely.  The insurance companies carry advertisement campaigns to introduce their product offerings to the target audience.  Besides the advertisement campaigns, the insurance companies work closely with the non-governmental organizations and self-help groups, women groups, to sell insurance packages particularly in the rural market for providing insurance cover for the informal sectors. 

 

The GOI is planning to merge the provisions of the Insurance Act of 1938 and the Insurance Regulatory and Development Authority (IRDA) Act to avoid multiplicity of legislations.  The proposed merger is likely to bring consistency among various provisions of the acts, remove ambiguity by defining/redefining certain provisions, and focus on minimizing grievances.   

 

The GOI is considering increasing the foreign direct investment limit from 26 per cent to 49 per cent.  The increase is expected to infuse the needed capital to manage the highly capital-intensive insurance sector.  The proposed increase in the foreign direct investment may also attract other foreign insurance companies to look at India more actively.  These developments will bring new product offerings to the local population besides competition. 

 

De-tariffing the non-life insurance, particularly the fire, engineering and motor insurance, is under the active considerations of the GOI.  The industry is actively debating the subject with divided opinion on whether the de-tariffing should be done completely or partially. 

 

Performance of the life insurance sector:  According to the Indian Insurance Regulatory and Development Authority’s (IRDA) annual report for 2003-04, the Indian life insurance sector continues to grow rapidly.  Indian life insurance sector underwrote premium of Rs. 84.25 billion ($1.95 billion) during April 2004 to September 2004, a growth of 55 per cent compared to the corresponding period in the previous year.  Of the Rs. 84.25 billion, the share of the individual premiums was Rs. 66.97 billion ($1.55 billion) and the balance Rs. 17.27 billion ($401 million) was group premium.  The GOI owned Life Insurance Corporation of India led the life insurance market with an impressive 81 per cent market share and the private insurance firms shared the balance 19 per cent. 

 

Performance of the non-life insurance sector:  Indian non-life insurance sector underwrote a premium of Rs. 92.11 billion ($2.14 billion) during the period April 2004 to September 2004, a growth of 15.05 per cent compared the corresponding period in the previous year.  Of the total premium, the government owned insurance firms and the Export Credit Guarantee Corporation together accounted for 81.74 per cent (Rs. 75.29 billion equivalent of $41.75 billion) while the eight firms in the private sector accounted the balance (Rs. 16.81 billion equivalent of $391 million) during the reporting period. 

 

Domestic insurance industry:

 

Life insurance sector:  Life Insurance Corporation of India (web site: http://www.licindia.com/lichome2/index.shtml) was the only life insurance provider until the GOI opened up the industry for the private sector in 2000.  Today, private sector firms compete with LIC in the life insurance business in India.  Details follow:  Bajaj Allianz Life Insurance Company (a joint venture between Bajaj Auto Limited and Allianz A.G., web site: http://www.bajajallianz.com/BagicNxt/indexc.jsp), Birla Sunlife Financial Services (a joint venture between the India’s Aditya Birla Group and Sunlife Financial Services of Canada, web site: http://www.birlasunlife.com/),  HDFC Standard Life Insurance ( a joint venture between the HDFC and the Standard Life Insurance of the U.K., web site:  http://www.hdfcinsurance.com/), the ICICI Prudential Life Insurance (a joint venture between the ICICI Bank and the Prudential Plc, U.K., web site:  http://www.iciciprulife.com/ipru/home.jsp), ING Vysya Life Insurance Company ( a joint venture between the Vysya Bank and the ING of Dutch, web site: http://www.ingvysyalife.com/), Max New York Life Insurance Company (a joint venture between the Max India Limited and the New York Life, web site: http://www.maxnewyorklife.com/), Kotak Mahindra Old Mutual Life Insurance Limited (a joint venture between the Kotak Mahindra Bank Limited and the Old Mutual Plc, U.K.,  web site:  http://www.kotaklifeinsurance.com/omkm/index.jsp), SBI Life Insurance Company Limited (a joint venture between the State Bank of India and the Cardif S.S., France, web site:  http://www.sbilife.co.in/sbilife/application), Tata AIG Life Insurance Company Limited (a joint venture between the Tata group and the American International Group, Inc., U.S.A., web site:  http://www.tata-aig.com/), AMP Sanmar Life Insurance Company Limited (a joint venture between the Sanmar group and the AMP, Australia, web site:  http://www.ampsanmar.com/#top), Aviva Life Insurance Company India Private Limited (a joint venture between the Dabur group and the Aviva Plc., U.K., web site:  http://www.avivaindia.com/), and the Sahara India Life Insurance Company Limited, a 100 per cent Indian owned insurance venture (web site:  http://www.saharaindiapariwar.org/business/financial/default.asp).  

 

 

Non-life insurance sector:  The following firms are actively promoting their non-life insurance products in the Indian market.  Bajaj Allianz General Insurance Company Limited (a joint venture between the Bajaj group and the Allianz A.G. of Germany, web site:  http://www.bajajallianz.com/BagicNxt/indexc.jsp), ICICI Lombard General Insurance Company Limited (a joint venture between the ICICI Bank and the Fairfax Financial Holdings Limited, U.S.A., web site:  http://www.icicilombard.com/app/), IFFCO Tokio General Insurance Company Limited (web site:  http://itgi.co.in/index.jsp), National Insurance Company Limited (a GOI owned venture, web site:  http://www.nationalinsuranceindia.com/nic/Home.htm), The New India Assurance Company Limited (a GOI  owned venture, web site: http://www.niacl.com/), The Oriental Insurance Company Limited (a GOI owned venture, web site:  http://orientalinsurance.nic.in/), Reliance General Insurance Company Limited (a 100 per cent Reliance group owned operation, web site:  http://www.ril.com/aboutus/about_rgi.html), Royal Sundaram Alliance Insurance Company Limited (a joint venture between the Sundaram Finance and the Royal and SunAlliance, U.K., web site:  http://www.royalsundaramalliance.com/), Tata AIG General Insurance Company (a joint venture between the Tata group and the American International Group, U.S.A., web site:  http://www.tata-aig.com/),   United India Insurance Company Limited (a GOI owned venture, web site:  http://www.uiic.co.in/index.jsp), Cholamandalam General Insurance Company Limited, (a joint venture between the Murugappa group and the Mitsui Sumitomo Insurance Company Limited, Japan, web site: http://www.cholainsurance.com/), HDFC-Chubb General Insurance Company Limited (a joint venture between the HDFC group and the Chubb group, USA, web site:  http://www.hdfcchubb.com/), Export Credit Guarantee Corporation (a GOI owned venture, web site:  https://www.ecgcindia.com/portal/), and the Agricultural Insurance Company of India Limited (a GOI owned venture, web site:  http://aicofindia.nic.in/about.html).    

 

End users:  Individuals, groups, and corporations are the end users of both life and non-life insurance products. 

 

 

Market access: 

 

Government of India allows private sector participation in the insurance ventures.  Present GOI regulations allow 26 per cent foreign equity in the domestic insurance projects.  The GOI is actively considering increasing the foreign equity to 49 per cent soon. 

 

Key contacts:

 

Insurance Regulatory and Development Authority is the point of contact in India.  Please visit IRDA web site at http://www.irdaindia.org/ for further information.