Posted on Sep 20, 2011 by Sergio Ulloa
India looks set to continue being one of the fastest growing insurance markets over the next decade, with rising income levels and awareness of risk management expected to drive a considerable demand for coverage solutions nationwide. Two new industry briefings released by India's commerce chamber reveal that the country will be one of the few major insurance markets expected to deliver double digit growth rates across both life and non-life product lines, contributing around a tenth of total global premium growth by 2015. Indian insurers could furthermore make a significant mark and compete on the global stage if they are able to refine their business models and capitalize on the tremendous potential available in their home market.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM), released statistics this week that forecast an 18 percent annual growth rate for India's general insurance industry until 2015, with the market size increasing from US$9.8 billion at present to upwards of US$18.8 billion in five years time. Assocham based their industry projections
on the increased consumer base for healthcare and automobiles, growth and investment in domestic small and medium enterprise, and a persistent demand for coverage options. "With this trajectory, India will be one of the fastest growing markets in Asia and globally - next only to China among major markets," the report said.
According to Assocham, motor insurance will remain the largest business line in the non-life insurance sector, accounting for over 40 percent of the industry's net premiums for the foreseeable future. India is slated to become the world's third largest car market by 2020, behind China and the United States, with over 7 million automobiles expected to be sold annually in the country. This surge in supply in conjunction with updated road safety, coverage and infrastructure will drive growth in the motor insurance sector.
Increased spending on healthcare and infrastructure will also be integral to the further development of the general insurance industry in India. Total expenditure on healthcare, through government sponsored schemes and private sector activity
, is expected to top US$200 billion by 2015 and this will create significant opportunities for the country's emerging health insurance sector. According to Assocham Secretary General D.S. Rawat, through substantial investment and government involvement
, health insurance may finally be gaining traction in India. "The health insurance segment will grow the fastest and account for close to 30 per cent of total industry premiums by 2015." He remarked in the press briefing.
The Indian government's upcoming 5-year economic plan, beginning April 2012, will call for nearly US$ 1 trillion in fresh infrastructure spending, updating and improving upon the country's vast road, port, railway and power systems. This substantial investment will create many opportunities for the local insurance industry, which will need to provide cover for these new projects. Assocham predicts that engineering insurance coverage for new infrastructure projects will become a particularly important area for growth, and could develop further avenues for expansion across other commercial lines sectors as well. The private sector is also developing briskly, with the number of small and medium enterprises in India projected to rise by 20 to 22 percent over the next decade. The trade body noted that the number of companies competing in the general insurance market had already increased from 16 in 2007 to 24 in 2011, and more would be forthcoming as more government and private sector business opportunities emerge.
India's life insurance market also presents significant growth potential. In a separate report, Assocham noted that the life sector's annual gross written premiums of US$5.6 billion would grow by 13 to 14 percent annually and reach US$108 billion by 2015. Over the past decade, India's life insurers reported a 28 percent rise in new business premiums, 27 percent in rise in annualized premium equivalent (APE) and a 25 percent increase in gross written premiums.
Assocham Secretary General D.S. Rawat, claimed however that while India's life insurance market had already become one of the ten largest in the world
, the local insurance industry still has to improve upon its performance standards. "The level of protection as measured by sum assured to GDP is about 55 percent relative to benchmarks in developed markets of 150 percent to 250 percent," Rawat noted. India's domestic insurance industry has been criticized for overtly focusing on selling short-term products and acquiring new business premiums at the expense of maintaining operational efficiency, profitability and customer retention. According to Assocham's data, between September 2010 and March 2011, the life insurance industry has slowed down considerably, posting negative APE growth rates in successive quarters.
The Indian life insurance industry is of course learning from this. Insurers need to develop sustainable business models to solve their profitability issues and succeed in a more competitive market. Going forward, Assocham expects the industry will broaden their focus to readdress their agency model incentives to encourage selling more long-term savings and protection products to consumers. Insurance industry regulators are also likely to become involved in the near future to ensure that the Indian life market better conforms to international standards.
Assocham concludes their report by highlighting the rapid evolution of the Indian consumer
and how this could affect the sale of insurance going forward. The emerging Indian middle class is at the forefront of the digital revolution, adopting the latest mobile technology and spending an increasing amount of their time and money digitally across networks. Over the next five years, mobile and internet driven micro-transactions in the country are projected to grow three to four times over. Thus it has become incumbent on insurers to enter this space to promote the value of insurance to consumers. Assocham believes this could in fact become a positive development for India's insurance industry. "High-quality and low-cost broadband access through mobile and hand-held devices through 3G and 4G services will provide a unique opportunity to leap front legacy issues and drive innovations which can help unlock growth, reduce costs and enhance service levels."
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) is India's premier apex chamber of commerce, with a membership encompassing over 200,0000 companies and professionals across the country. Assocham works to represent the interests of all industry and trade in India. The organization lobbies the national Government on policy issues and interfaces with corresponding international organizations to support bilateral economic interests. Assocham was established in 1920 by promoter chambers and represents all regions of India.