ICRA Report Highlights Challenges For India's Insurer

Posted on Jan 25, 2011 by Sergio Ulloa (G+)

The impact of de-tariffing in the Indian general insurance industry has lead to a challenging time for Indian insurers during the 2007-2010 period. This factor is highlighted in a report by rating agency ICRA. The combination of tough economic conditions and the de-tariffing of the fire, motor and engineering sectors in the Indian insurance industry has resulted in a recorded compounded annual growth rate (CAGR) of 11.5 percent between 2007-2010, which compares with a growth rate of 16.8 percent during 2004-2007. A report released by ICRA, India's credit rating agency, analyzes the general insurance industry in India - a business which is estimated to be worth Rs 348 billion (US$ 7.6 billion). It found that the general insurance sector went through a challenging period between 2007-2010 set off by the global financial crisis, which triggered the complete (other than third party motor insurance) de-tariffing of the general insurance industry in the country from the 1st January 2007. The de-tariffing measures saw Indian general insurers activate the discounting of prices - initially within parameters permitted by the Indian insurance regulatory apparatus - but these were subsequently removed. The de-tariffing of charges has had a significant impact on the four public sector run insurers and private insurance companies, affecting the pricing, profit margins and growth of the general insurance business in India in the 2007-2010 period. De-tariffing resulted in pricing discounts without due regard to the risks and profitability of the business being generated. Market leaders in the general insurance business in India include ICICI Lombard, Bajaj Allianz, Reliance General and HDFC ERGO. The health insurance sector has been particularly challenging for insurers as prior to de-tariffing margins had been cross subsidized by the more profitable insurance products in the fire and engineering sectors. However, health insurance is the fastest growing segment of the Indian insurance market led by multi-national insurer's recent ventures with locally based and established insurance companies. This is reflected by the new developments such as the formation of MaxBupa - the partnership between UK's British United Provident Association (BUPA) and locally based Max India Limited - competing with Star Health, Apollo Munich and Bajaj Allianz. In 2010, the health sector accounted for 20.8 percent of the general insurance market in India. Over recent years the Indian health insurance industry has maintained steady growth rates, driven by rising income levels and an increased awareness of the benefits of health insurance leading to a CAGR in excess of 30% during the last six years. This level of growth is predicted to continue over the next five years with the prospect of improving returns from new written premiums; insurance companies in the private sector are expected to be particularly well placed to capitalize on emerging opportunities. Indian banks are expected to enter the Indian health insurance market, seizing on opportunities to cross-sell polices to customers buying other forms of insurance from them. The development of microinsurance products aimed at offering the high numbers of the low paid elements of society with a range of insurance cover could stimulate significant volumes of new business. While ICRA's analysis expects the soft pricing regime to continue in the short-term, placing continued pressures on margins for insurers in India, there is a reasonable prospect for premiums to return to levels to fully reflect risk attribution in the longer-term. In the meantime, the focus for insurers in the Indian general insurance industry will be on improving network efficiency, product development and differentiation as well as cost controls in order to maintain market share linked to the exceptional growth in the Indian economy. Insurance Companies Mentioned: MaxBupa Max Bupa Health Insurance is a 74:26 joint venture between Max India Limited and UK-based Bupa. Bupa is a leading private healthcare provider with more than 10 million customers worldwide and over 60 years experience in the health sector. The Max India Group has expertise in both health and insurance related services including hospitals, clinical research and life insurance. Star Health and Allied Insurance Star Health and Allied Insurance is a specialist health insurance provider and was the first stand alone health insurers in India. Star Health and Allied Insurance provides health, accident, student, travel, and life insurance. Apollo Munich Health Insurance Apollo Munich Health Insurance Co. Ltd. (previously known as Apollo DKV Insurance Co. Ltd) is a joint venture between the Apollo Hospitals Group and Munich Health. Apollo Munich Health Insurance provides health, personal accident and travel insurance. Bharti Axa General Insurance Bharti AXA General Insurance is a joint venture between Bharti Group and AXA Group. Founded in July 2007 in Bangalore, India it now has over 40 branches across India offering a variety of insurance products for retail, commercial and rural customers. HDFC Standard Life Insurance Company Ltd HDFC Standard Life Insurance Company Ltd. is one of India's leading private life insurance companies, which offers a range of individual and group insurance solutions. The company provides a line of protection, retirement, savings and investment, children, health, and group plans. It is a joint venture established in 2000, between Housing Development Finance Corporation Limited (HDFC Ltd.) and The Standard Life Assurance Company, a leading provider of financial services from the United Kingdom. HDFC ERGO HDFC ERGO General Insurance Company Limited is a 74:26 joint venture between HDFC Limited, India's premier Housing Finance Institution & ERGO International AG, the primary insurance entity of Munich Re Group. HDFC ERGO has been expanding its presence across the country and is today present across 71 cities with78 branch offices with an employee base of over 950 professionals. The company has a right balance of distribution channel comprising of Dealerships, Brokers, Retail and Corporate Agents, Bancassurance and Direct Sales Team. ICICI Lombard GIC Ltd ICICI Lombard GIC Ltd. is a 74:26 joint venture between ICIC Bank Limited, India's second largest bank with consolidated total assets of over USD 100 billion at March 31, 2010 and Fairfax Financial Holdings Limited , a Canada based USD 30 billion diversified financial services company engaged in general insurance, reinsurance, insurance claims management and investment management. ICICI Lombard GIC Ltd. is the largest private sector general insurance company in India