The Insurance Regulatory and Development Authority Act was passed in India in 1999, which allowed the introduction of private companies to participate in the insurance market in India and named the IRDA as the sole insurance regulatory body to oversee all insurance-related activity. The mandate of the IRDA was to both regulate the insurance industry, and also to help develop the market. India’s insurance industry has witnessed rapid growth during the last decade. Consequently, many foreign companies have expressed their interest in investing in domestic insurance companies. Prior to the Act, insurance in India was a state monopoly. As a newly established entity with a daunting mandate, the IRDA sought USAID technical assistance to help build its institutional capacity to apply leading international practices for the newly created private insurance industry and its supervision. In addition, the IRDA addressed deepening and broadening insurance penetration, particularly among those residing in India’s rural areas and the poor. Both of these groups comprise a large percentage of the Indian population. India insurance is a flourishing industry, with several national and international players competing and growing at rapid rates. With reforms and the easing of policy regulations, the Indian insurance sector been allowed to flourish, and as Indians become more familiar with different insurance products, this growth has significantly increased in the period from 2010 – 2015 said to be the ‘Golden Age’ for the Indian insurance industry. India’s rapid rate of economic growth over the past decade has been one of the most significant developments in the global economy. Overall, the regulatory environment is favourable and takes care that players maintain prudent underwriting standards, and reserve valuation and investment practices. The primary objective for the current regulations is to promote stability and fair play in the market place.
The promise of India’s insurance market is compelling, with all the elements needed for handsome growth. The country’s life insurance market is a good example of the potential a young, increasingly prosperous population offers insurance companies that realize this opportunity and make plans to benefit from it. The Indian insurance market has great growth potential, with life premiums predicted to reach US$230 billion by 2025, driven in part by a culture of saving. A favourable regulatory environment, increasing consumer awareness about the benefits of insurance and higher levels of infrastructure development are expected to drive growth in the Indian non-life insurance sector during the forecast period from 2014 to 2018.The Indian non-life insurance segment is concentrated, with the top 10 companies accounting for 77.5% of the gross written premium in 2014. The leading four insurers operating in the non-life segment are government-owned, and accounted for 49.4% of the segment’s gross written premium in 2014. The remaining six are insurance joint ventures with foreign companies. They account for 28.2% of the segment’s gross written premium. The potential for greater foreign involvement in the Indian non-life insurance industry opens up the possibility of greater competition and application of marketing techniques to build brand awareness and therefore increase market penetration. The insurance sector has been waiting for much-needed economic reforms. For instance, the sector is still largely closed to higher levels of foreign direct investment that has been eagerly awaited by the promoters of insurance companies. Despite these challenges, the insurance industry is trying its best to adjust to these new market dynamics of increasing wealth, changing demographics and consumer preferences.
WIDE RANGE OF TECHNICAL ASSISTANCE:
The growth in insurance industry has been spurred by product innovation, vibrant distribution channels, coupled with targeted publicity and promotional campaigns by the insurers. Innovation has come not only in the form of benefits attached to the products, but also in the delivery mechanism through various marketing tie-ups. All these efforts have brought insurance closer to the customer as well as made it more relevant. Due to the growing demand for insurance, more and more insurance companies are now emerging in the Indian insurance sector. With the opening up of the economy, several international leaders in the insurance sector are trying to venture into the India insurance industry. US Agency for International Development Deloitte provided a wide-range of technical assistance to the IRDA while supporting institution-building efforts of other stakeholders working within the insurance market in India. Specific activities included:
- Designed and implemented trainings for the regulator in most aspects of the regulatory cycle. Special focus was placed on encouraging the practical application of principles of health insurance, health economics and managed health care as well as in actuarial methodologies used in the scientific pricing and reserving of health insurance products
- Assisted the design and installation of an IT-based “early warning system” to monitor insurer solvency and the association of actuaries to adopt a more broad actuarial education curricula and apply modern actuarial methodologies
- Introduced supervisory tools and examination manuals for on-site financial condition examination and market conduct inspection of insurance companies and provided assistance in capacity-building activities for the associations of life insurers and general insurers, particularly in areas relating to self-regulation
- Organized two internship programs in cooperation with the US National Association of Insurance Commissioners (NAIC) to enhance IRDA staff’s knowledge and skills in insurance supervision and take advantage of on-the-job learning in several state insurance departments in the United States;
- Supported IRDA in framing regulations for micro-insurance, allowing for the distribution and administration of micro insurance products including health insurance. This enabled NGOs, community-based organizations, and MFIs to offer and administer micro insurance schemes in rural areas particularly for the poor and vulnerable, thus making insurance for the economically vulnerable more accessible. Actively participated in forums and round table discussions about the challenges and opportunities created by the insurance reform.
The productive collaboration under the USAID-funded project resulted in strengthened institutional capacity of the IRDA, with a special emphasis on equipping it to deal with changes in the insurance industry’s competitive profile, institutional framework and professional landscape. The benefits of the project continue to be felt in India today, with ongoing internships in the United States to facilitate continued learning and information exchange for IRDA staff. In addition, the project contributed to significant changes in India’s insurance industry. India is still lagging behind in in penetration rate especially in non life sector. Swiss Re data shows the real growth (%) of direct premiums written in major non-life insurance markets and regions:
LONG AWAITED INSURANCE BILL:
The long-pending Insurance Bill, a key economic reform legislation providing for raising foreign investment cap to 49 per cent, was passed which was pending since 2008. The proposed legislation will allow PSU general insurers to raise funds from the capital market and provides for increased penalty to deter multilevel marketing of insurance products. In the banking sector, the FDI cap was 74 per cent. The controversial Insurance Laws (Amendment) Bill, which seeks to replace an ordinance, provides for imprisonment of up to 10 years for selling policies without registration with the regulator IRDA. China and a number of other countries allow higher foreign investment in insurance. India is well within the global benchmarks. The amendments are aimed at bringing about improvements and revisions in the laws relating to insurance business in India to remove archaic provisions and incorporate modern day practices emerging in a changing dynamic environment, which includes private participation. Under the new provisions, the Life Insurance Council and the General Insurance Council would act as self-regulating bodies for the sector.
The FDI limit hike in insurance could result in immediate inflow of around Rs 20,000 crore. Furthermore, FDI hike in insurance is de jure increase in FDI limits for pension sector also. The move could also presage the emergence of a new market for reinsurance in India with the legislation providing for the entry of global companies such as Berkshire Hathway, Munich Re, Lloyds of London and Swiss Re. They can operate in India through branches similar to multinational banks, providing for flexibility. The passage of the legislation also alleviates concerns about policies getting stuck owing to resistance in the Upper House. It will be seen as a signal that the government is able to move amendments and Parliament is functioning. The regulation bringing in additional capital will stimulate growth of Indian life insurance. Also, attracting foreign insurers to come to the market will bring in new ideas and experience.
DISRUPTIVE MARKET GROWTH:
The industry went through a painful time between 2010 and 2013. Now, it has come out of many challenges. The biggest challenge the industry faces today is to build a trustworthy relationship with its customers. There is a huge gap to be covered on this front. The other possible challenge for the industry would come if the economy does not pick up and income growth of individuals is impacted. Then product sale will not happen. The industry has been growing by 20-25% and this growth should continue over the next 2-3 years. Insurance awareness has increased due to regulatory help and the launch of Pradhan Mantri Jeevan Jyoti Bima Yojana. The scheme has bought by 12 crore customers this year. The industry needs more of such no-frill traditional products that can be sold easily and do not require much explanation. Such products will also help penetration in smaller markets. The regulator has put many checks and balances in place to curb mis-selling like need assessment before selling insurance products. Banks are in the process of implementing these checks and balances. Also, banks are regulated entities and thus safe when it comes to selling products to customers. Other distribution channels are not regulated. Mis-selling through banks has come down. With awareness about insurance on the rise, potential customers are looking for banks or insurers to assess their requirements and then suggest products. As more people join the bandwagon and ask for need analysis, there can’t be mis-selling.
With largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. It’s a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 450 billion. Together with banking services, it adds about 7 per cent to the country’s GDP. Gross premium collection is nearly 2 per cent of GDP and funds available with LIC for investments are 8 per cent of GDP. Yet, nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security. This itself is an indicator that growth potential for the insurance sector is immense. A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and at the same time strengthens the risk taking ability. The Insurance sector, to some extent, can enable investments in infrastructure development to sustain economic growth of the country.
SELLING BIG TIME:
The Indian Travel insurance market is worth approximately Rs 240 crore. Around 60% of travel insurance policies provide cover for `terrorism’ but schemes may vary. For example, in cases like the Paris attack, the insurance company will step in to offer the entire medical expense of an Indian guest. They will also pay for flight tickets back home on completion of the treatment. However, the guest will not get monetary compensation in case of partial, permanent disablement or death as those come under liability covers where the guest will have to file a claim with the government of that country to claim compensation. In case of natural disasters like floods, earthquakes or an epidemic, mostly all travel insurance policies cover the insured for any financial loss incurred during such natural disasters or a medical emergency. However, it is always advisable to refrain from travelling to places where contingencies are foreseen or expected. A spate of natural disasters and terrorist incidents in 2015 including the Paris attacks; the earthquake in Nepal and the Ebola epidemic in West Africa have doubled the consumption of travel insurance. Roughly 4.5 lakh travel insurance policies worth approximately Rs 110 crore were sold in 2014. Despite this growth, penetration of travel insurance is still quite low. Even though 90% of people are aware about it, only 20% opt for travel insurance when they hit the road. Segment-wide premium of non life insurers remains as follow
Indian insurance companies offer a comprehensive range of insurance plans, a range that is growing as the economy matures and the wealth of the middle classes increases. The most common types include: term life policies, endowment policies, joint life policies, whole life policies, loan cover term assurance policies, unit-linked insurance plans, group insurance policies, pension plans, and annuities. General insurance plans are also available to cover motor insurance, home insurance, travel insurance and health insurance. Insurance companies can look at micro insurance as either a regulatory obligation or an investment in loyal customers who will purchase standard insurance products as they become financially secure. India — the world’s second-most populated country, with an estimated 68.7% living below the poverty line of US$2.00 per day — is primed to offer micro insurance products. In fact, the IRDA mandates that a portion of new policies are underwritten to rural customers, and regulations require that insurance be offered annually to a certain percentage of defined economic sectors based on the number of years the insurer has operated in the market. New micro insurance sales in FY2012 – 2013 totalled around five million lives through individual retail sales at around US$3.60 per policy, and 13.9 million lives under group plans at around US$2.60 per life covered. Penetration of general insurance in India has come down to 0.70% in 2014-15 from 0.80% in the previous fiscal despite an increase in per capita premium during the same period. However, the general insurance density – per capita premium – went up slightly from Rs 664 to Rs 686 last fiscal. In fact, the insurance density has increased threefold from Rs 235 to Rs 686 over a decade.
TECHNOLOGICAL ADVANCEMENT:
Digital innovation has been the catalyst for customer revolution, but also offers opportunities to develop greater customer engagement, insight and experience to meet customer needs more effectively. Most insurers are still focused on e-commerce but, the leaders are developing longer lasting relationships by using their digital capabilities to gain enhanced customer knowledge and harnessing that information to profile customers more effectively, fine-tune underwriting and deliver customised solutions. Market growth is being accelerated by mobile and Internet penetration that is improving distribution efficiency and claim management. For example, handheld devices, Internet kiosks and mobile vans are insurance distribution tools in rural areas. Even so, life insurance penetration is still low, faced with enrolment and claim settlement challenges. Health insurance faces similar challenges in addition to those of covariant risk and poor medical infrastructure in rural areas. With even the remotest areas of the country witnessing increased penetration of mobile phones and the Internet, direct selling through telemarketing and the Internet is slowly gaining momentum, particularly among young, upwardly mobile, urban, middle-class consumers. This is especially true for simple products like health and term insurance. The IRDA is also making efforts to maximize this platform’s potential with the introduction of Internet awareness campaigns, online games and the use of social media. Insurers are also entering the social media space and getting involved in online customer engagement.
India is also establishing e-repositories for insurance products, which enable customers to hold their insurance policies in dematerialized (electronic, nonphysical) accounts with IRDA-approved repositories. The e-repositories will help in safekeeping insurance policies and protecting policyholders against loss of physical copies, and will act as a single contact point for maintaining multiple insurance policies (e.g., changes to policyholder/nominee details). The e-repository is also expected to facilitate payment of online premiums, switching funds (for unit-linked policies), claim filing, etc. E-repositories can currently hold life and pension insurance policies, but in the future will also be able to hold auto, health, home and other general insurance products. This will support the growth of the online sales channel as customers become more accustomed to the electronic portfolio format. Gross direct premium income of the general insurance industry, consisting of 28 players, including five exclusive health insurance players, increased from Rs 26,110 crore in 2006-07 to Rs 84,686 crore in 2014-15. The capital employed by general insurers increased to Rs 43,546 crore from Rs 16,527 crore during past one decade, while investments have also gone up by more than fourfold — from Rs 31,584 crore in 2006-07 to Rs 1,39,887 crore in 2014-15. The number of offices has increased from 5,112 to 10,381, while policies issued have more than doubled from 6.04 crore to 12.60 crore during the past decade. Moreover, net retention ratio also increased from 67.6% to 78.90% during the period. Far from just being another channel, the impact of digital is transforming what customers expect, creating fresh opportunities to get closer to the customer and moving non-life insurance from a price to a value consideration. Indeed, rather than a digital strategy, the key objective for insurers should be developing a business strategy for the digital age.
The year 2015 was the busiest for Indian Insurance companies not only from the point of view (POV) of compliance with the new regulations but also due to the passage of the Insurance Laws (Amendment) Act 2015. The Act allowed foreign direct investment (FDI) in the sector to increase to 49 per cent from 26 per cent. While most of the foreign joint venture partners have applied to the Foreign Investment Promotion Board (FIPB), the real test of compliance to Indian management control norms lies in the year 2016. The Insurance Act now stipulates that management control must rest with Indians at all times. In October 2015, Insurance Regulator brought out the norms for Indian management and control. Earlier, it was assumed that Indian management control norms would only be applicable to those insurers whose foreign partners increased their stake to 49 per cent. Accounting firms and insurance consultants have been appointed by all insurance companies with foreign partners to work on the contours of the agreements. Even approvals for FDI hike proposals would be received from IRDAI only if management control is in hands of Indians. Further, since FIPB has given IRDAI the responsibility to ensure compliance, they are having a closer scrutiny on all existing agreements. The amendments are expected to enable the sector to achieve its full growth potential and contribute towards the overall growth of the economy and job creation.
The global economy is expected to strengthen moderately next year, supporting insurance premium growth in most regions, according to Swiss Re’s latest publication, Global insurance review 2015 and outlook 2016/17. Demand for non-life insurance is expected to grow, led by an 8% to 9% annual gain in the emerging markets in 2016 and 2017. The life insurance sector faces challenges, in particular from ongoing low interest rates. Nevertheless, global life premiums are forecast to rise by about 4% in each of the next two years, led also by the emerging markets. The global economy is expected to strengthen moderately next year. The US and the UK economies are currently growing by close to 2.5%, and real gross domestic product (GDP) growth in Japan and the Euro area are a more subdued 0.7% and 1.5%, respectively. The four economies are all expected to see slightly better growth in 2016. Emerging markets will grow by about 5% in each of the next two years, an improvement on the current 4% pace. Year 2015 has witnessed increase in the general alertness of people with regards to healthcare and insurance primarily owing to awareness led by Government schemes, spurt in catastrophic events and increase in medical inflation including OPD expenses. Customers are now keen to evaluate the credibility of hospitals in terms of association of doctors, hospital’s reputation and treatment facilities; before availing treatment. More and more people are relying on their insurance provider as a source of credible healthcare information for better decision making. Meanwhile, there is an increasing trend with almost 51% of customers being referred to tertiary hospitals the same is rising year on year. The year 2015 also marked a heartening drift with insurers succeeding in bringing down the market medical inflation to half.
Further, the amendments to the laws will enable the interests of consumers to be better served through provisions like those enabling penalties on intermediaries / insurance companies for misconduct and disallowing multilevel marketing of insurance products in order to curtail the practice of mis-selling. The amended Law has several provisions for levying higher penalties ranging from up to Rs.1 Crore to Rs. 25 Crore for various violations including mis-selling and misrepresentation by agents / insurance companies. With a view to serve the interest of the policy holders better, the period during which a policy can be repudiated on any ground, including mis-statement of facts etc., will be confined to three years from the commencement of the policy and no policy would be called in question on any ground after three years. The amendments provide for an easier process for payment to the nominee of the policy holder, as the insurer would be discharged of its legal liabilities once the payment is made to the nominee. It is now obligatory in the law for insurance companies to underwrite third party motor vehicle insurance as per IRDAI regulations. Rural and Social sector obligations for insurers are retained in the amended laws. IRDAI is empowered to regulate key aspects of Insurance Company operations in areas like solvency, investments, expenses and commissions and to formulate regulations for payment of commission and control of management expenses. 2016 will be good for the General insurance sector, including for the larger pieces of health and motor insurance. With the expected changes on the policy front and overall strengthening of the macro-economic scenario, the industry is poised to enhance its value proposition across the product and service spectrum. It should be an exciting 2016 for Health and Motor insurance customers.
Author :
JAGENDRA KUMAR
Ex. CEO, Pearl Insurance Brokers
71/143, “Ramashram” Paramhans Marg,
Mansarovar, JAIPUR-302020
References:
- https://www.irda.gov.in
- http://economictimes.indiatimes.com/opinion/interviews/industry
- http://wap.business-standard.com/article/bs/irdai-grants-lifeline-to-general-insurance
- IRDA Annual Report 2014
- http://www.ibef.org/industry/insurance-sector-india.aspx
- Swiss Re’s publication, Global insurance review 2015 and outlook 2016/17
- http://www.indiainfoline.com/article/print/news-sector-insurance/2016
- Newspapers & Journals.
Good one