The demand for insurance products is likely to increase in account of exponential growth of household savings, purchasing power, middle class, and the country’s working population.

• Definition / Scope
• Market Overview
• Top Market Opportunities
• Market Drivers
• Market Restraints
• Industry Challenges
• Technology Trends
• Regulatory Trends
• Market Size and Forecast
• Market Outlook
• Technology Roadmap
• Distribution Chain Analysis
• Competitive Landscape
• Competitive Factors
• Key Market Players
• Strategic Conclusion
• References
• Appendix

Definition / Scope

Insurance is a contract between insurer (insurance company) and insured (policyholder) which specifies the conditions and circumstances under which the insurer will compensate the insured. The insured in entitled to pay premium to the insurer and in exchange insurer promises to compensate the insured in case insured experiences any loss. Insurance is thus basically a means to hedge against the risk of financial losses.

There are two types of insurance namely life insurance and non- life insurance (general insurance).

• Life insurance is policy that pays the covered risk amount to the insured or beneficiary upon a certain event such as death of the individual who is insured.
• General insurance is policy that provides financial protection for building, machinery, equipment, vehicle and merchandise. It also includes fire insurance, marine insurance and miscellaneous insurance.

Market Overview

The past decade has seen tremendous growth in insurance sector and has seen the large number of players entering the market with innovative products. The insurance sector had only government owned entities till a decade back. LIC (Life Insurance Corporation of India) was the only life insurance and non-life had few companies like National Insurance, Oriental Insurance, United India Insurance, etc. After 2000 when private players were allowed to enter the market, large private players entered the market and have been aggressive ever since. 

There are 57 insurance companies in India, out of which 24 are life and rest 33 are non -life insurance companies. There is only one public sector company in life insurance and 6 in non-life insurance. General Insurance Corporation of India (GIC Re) is the sole national reinsurer.

In 2017, insurance sector in India had 10 mergers and acquisition worth US$ 903 million. The insurance industry is regulated by Insurance Regulatory and Development Authority of India (IRDAI), established in 1999 which frames the rules for the entire insurance industry.

Top Market Opportunities

1. Multiple Channel of Distribution– Distribution is a key determinant of success for insurance companies. Linking insurance with finance products like housing loan, mutual fund investment in companies, bank credit cards, are new channels for insurance.

2. Huge untapped market– There is significantly untapped market in India. This gives space for all players to grow and expand the insurance industry. The insurance penetration is quite low compared to other nations.

3. Increasing population– The working population of India is expected to increase to 790.5 million by 2026. The increased incomes are expected to result in larger disposable income which can be a major driver for this sector.

4. Threat to Health and Life – Natural calamities, terrorism, pollution, stress are increasing the health risk of people. Hence, there is a growing need for these people to get different types of insurance.

Market Drivers

1. Increased Consumer Awareness and Demand– The growing affluence of the Indian middle-class accompanied with life style-related diseases, high healthcare costs, and increased awareness are driving the demand for health insurance in India. People are also gradually becoming aware of the importance of having insurance policy.

2. Strong Growth of Automobile Industry– The fast growth of automobile industry is driving the motor insurance market. In general insurance, motor insurance is dominating the market.

3. Favorable Government Policy – The recent reform of government like relaxation in FDI policy, Insurance Bill, is acting in favor of insurance industry Government is also coming up various initiatives and programs to promote the insurance industry.

4. Alternative Distribution– Gone are the days where only agents used to sell the insurance policies to the people. The emergence of alternative distribution channels has enabled the success of insurance industry. Distribution channels like bancassurance, direct selling agents, brokers, online distribution, corporate agents are becoming popular.

5. Product Innovation– Product innovation from insurance industry is luring the customer to take policies. Pension plans, retirement plans and child education plans are some of the attractive plans. The increasing number of providers is offering a large range of covers at competitive prices and higher level of sophistication.

6. Higher Spending– The higher spending on consumer goods, travel, automobiles, are underlying drivers for various insurance. As people want to hedge the risk, they are more likely to do insurance.

Market Restraints

• IRDAI allows 49% FDI in Indian insurance sector. If any foreign company wants to invest in Indian insurance market then it would have to form collaboration with some Indian companies. As the foreign investor can hold only up to 49% equity and the remaining is held by Indian company, this forms a entry barrier for foreign company willing to enter the market.
• Insurance is a capital intensive sector that requires huge initial investment and capital is also blocked for long period of time.
• New insurance willing to enter the market should meet paid up capital requirement. The requirement of huge capital makes it difficult for new entrants to enter the market.
• The existing process in insurance sector is costly due to high regulatory cost.
• A single company can carry out only one type of insurance. Hence, this put restrictions on any company willing to expand their business.

Industry Challenges

1. Profitability – Despite the increased policyholders and premium, profit remain a huge challenge in insurance industry. Profitability is more of concern for non-life insurance than life insurance. Life insurers may success because of large distribution networks, market expertise, lower cost while the picture for non-life insurers is less certain as there is no clear difference in ownership structure among insurers.

2. Insurance as push product– Insurance industry currently is acting more as push product than pull product. There is very little customer pull, which will come from increased awareness. The meeting of right product and right customer’s need would make the insurance as pull product as against push product.

3. Competition– With an entry of large players, there is competition to grab market share and premium. Low premium due to large number of players is liekly. The competition might lead to low margins for the companies. 

4. Distribution Channel– Developing robust and multi channel distribution in insurance will remain the most competitive challenge for new insurers.

5. Quality of Manpower– Insurance is people-oriented business and human resource will be the differentiator like other retail industry. Most of the success of the insurance depends upon its manpower.

6. Relationship Management– The relationship with the client should be maintained in proper and consistent manner, but due to the mistakes of agents sometimes the relationship is affected and business is lost.

7. Others– Cost, taxation, customer service, regulatory issues, product pricing, innovation, fraud control mechanisms, are other major challenges for insurance.

Technology Trends

• Artificial Intelligence in the insurance industry is helping insurance agents in flawless automation of existing customer-facing, underwriting and claims process.
• Most of the insurance companies are developing their apps to improve customer experience. Customer can download the app and get every detail on various policies.
• Insurance companies are using automation, data analytics, connected devices, and machine learning to build holistic policies for customers.

Regulatory Trends

• The Government of India is taking positive actions to boost the insurance sector in India.
• National Health Protection Scheme is expected to launch under Ayushman Bharat to provide coverage up to US$ 7,723 to more than 100 million deprived families.
• In 2017-18, over 47.9 million farmers were assisted under Pradhan Mantri Fasal Bim Yojana.
• The IRDAI is proposing to issue redesigned IPO guidelines for insurance companies in India.
• Government has approved the ordinance to increase FDI limit in insurance sector from 26 percent to 49 percent.

Market Size and Forecast

As per the Economic Survey 2018, insurance penetration – the ratio of premium underwritten in a given year to the GDP in India increased to 3.49% in 2016/17 from 2.71% in 2001. Emerging economies in Asia such as Malaysia (4.77%), Thailand (5.42%) and China (4.77%) have higher penetration rate than India. 

The overall insurance penetration in India reached 3.69 percent in 2017 from 2.71 percent in 2001. As per the latest data, gross premiums in India reached US$ 94.48 billion in FY2018, with US$ 71.1 billion from life insurance and US$ 23.38 billion from non-life insurance.

Up to August 2018, premium from new life insurance business increased 6.20 percent year-on-year to US$ 11.28 billion and up to July 2018, gross direct premium of non-life insurance reached US$ 7.32 billion showing year-on-year growth rate of 13.91 percent. 

Over FY 2012-18, premium from new business of life insurance companies in India increased at a 14.4 percent CAGR reaching US$ 30.1 billion. Whereas non-life insurance increased at CAGR of 16.55 percent .

Market Outlook

The overall insurance is expected to reach US$ 350-400 billion by 2020. The insurance industry plans to hike the penetration levels up to 5 percent by 2020.

Also, it is estimated that insurable population will touch around 750 million people by 2020. The country’s insurance market is expected to magnify in size over the next 10 years from its current size.

Technology Roadmap

Technology has emerged as a boon for the insurance industry. Internet penetration and usage have a positive correlation with the performance and activities of insurance companies at various levels like customer acquisitions costs, improved access to information, product innovation that cater to the needs of customer and enhanced convenience.

It is estimated that digitization will lower 15 to 20 percent of total cost for life insurance and 20 to 30 percent for non-life insurance. The insurance sector shall have growth and reach significant size in the future as the internet penetration increases, awareness of the customers also rises.

Distribution Chain Analysis

In the recent period, the insurance industry has witnessed the emergence of alternate distribution channels. These includes bancassurance, direct selling agents, brokers, online distribution, corporate agents, tie-ups of para-banking companies with local corporate agencies in remote areas.

Competitive Landscape

Most of the private players in the India have started business with the partnership of established insurance players in the world. This helps the Indian insurance company to perform much better as they can replicate and learn the expertise of global players.

The life insurer has 23 private players in 2018 as compared to only 4 in FY 2002. Over the years, share of private sector has in life insurance has increased from 2 percent in FY 2003 to 29.69 percent in 2018. In non- life insurance there are 6 public players and rest are private players.

Competitive Factors

Many of the insurance companies compete on price and services to attract customers. Product innovation and vibrant distribution channels equally attracts customers.

The effectiveness and diverse distribution strategies is important in ensuring the success of players in the insurance business With customers asking for increased levels of customization, product innovation is one of the best strategies to capture the market share.

Key Market Players

The motor insurance has dominated the non-life business, health insurance is growing at rapid rate and will replace the fire insurance. As of November 2017, the New India Assurance has the highest market share in non-life sector at 15.6 percent followed by National Insurance (11.17 percent), United India Insurance (10.82 percent) and ICICI (8.81 percent).

As per the data of February 2018, LIC is the market leader with 70.31 market share, followed by HDFC Standard Life at 5.65 percent.

Strategic Conclusion

The future of Indian insurance industry looks promising with several changes in regulatory framework which will lead to further changes in the way insurance business conducts its business.

A well- developed insurance sector is a boon to the economic development of country. Insurance provides some long-term funds for the development of country’s infrastructure as well as strengthening the risk taking ability of the country.

Demographic factors like growing middle class, growing awareness of the need for insurance, will support the growth of insurance industry. There is enough potential for positive growth of Indian insurance industry given the efforts of government, regulators, and players.

References

1.  https://www.myinsuranceclub.com/articles/insurance-industry-in-india-e28093-an-overview
2.  https://www.slideshare.net/ResurgentIndia/indian-insurance-industry-growth-drivers-part-3
3.  https://www.slideshare.net/PoojaPatel257/analysis-of-indian-insurance-industry
4.  http://www.swissre.com/media/news_releases/nr_20111220_emerging_markets.html
5.  https://timesofindia.indiatimes.com/business/india-business/insurance-penetration-in-india-has-risen-to-3-49-economic-survey-says/articleshow/62696220.cms
6.  https://www.ibef.org/industry/insurance-sector-india.aspx
7.  https://www.linkedin.com/pulse/total-market-size-insurance-sector-india-projected-touch-singh
8.  https://www.ey.com/in/en/industries/financial-services/insurance/indian-insurance-sector
9.  https://economictimes.indiatimes.com/industry/banking/finance/insure/non-life-insurers-gross-premium-up-9-per-cent-at-rs-10012-crore-in-november/articleshow/62103865.cms

Appendix

• CAGR – Compound Annual Growth Rate
• FDI – Foreign Direct Investment
• FY – Fiscal Year
• GDP – Gross Domestic Product
• IPO – Initial Public Offerings
• IRDAI – Insurance Regulatory and Development Authority of India
• LIC – Life Insurance Corporation of India
• US – United States