Indian insurance sector – Building Growth, Building Value – EY Report
Article Synopsis :
The passage of the Insurance Laws (Amendment) Act of 2015 is a significant development. Indian insurers now have greater access to foreign capital which figures to re-energize the sector.
In “Indian insurance sector – Building Growth, Building Value”, the Confederation of Indian Industry (CII) and EY discuss the evolution of the Indian insurance industry in light of recent developments. A separate section outlining issues facing global insurance markets is included to help put the India discussion in context.
Rapid economic growth, a rising middle class, and bullish equity markets fuelled a 23% average rate of premium growth for the Indian life insurance industry between 2002 and 2011, with premium growth in the non-life sector growing 16% over the same period. But growth has slowed as the economy has moderated and insurers have shifted their focus from revenue to profitability. Increased regulation has also been a factor. More robust growth is expected to return with life premiums growing 6% and non-life 14% through 2018.
The report identifies six imperatives for Indian insurers moving forward:
1. Pursue efficiency in distribution
- Collaborate to drive pan-industry talent development
- Unify service support for third party distributors
- Optimize network distribution
- Take a multi-channel approach
2. Make the most of Insurance Laws
- Collaborate to drive customer awareness
- Avail reinsurance expansion to design higher margin products
- Reach out to hitherto underpenetrated customer segments
- Adopt global best practices to enhance operational efficiency
- Raise service delivery standards to boost customer engagement and reputation
3. Anticipating a paradigm shift, explore possibilities in the pension space
4. Further penetrate the health insurance market
- Improve frameworks to curtail fraud
- Greater role by life insurers
- Engage customers early
- Cost-effective health insurance products for the elderly
- Combo products with savings elements
- Raise service proficiency
5. Solve the cost conundrum by greater use of technology
- Achieve operational efficiency through information system integration across partners
- Implement a modern and integrated claims management system
- Leverage analytics to manage fraudulent claims
- Adopt usage-based insurance technologies – particularly in motor
6. Embrace ‘Digital’ – disrupting the traditional business structures
- Analytics – a critical element for digital success
- Cyber security
The industry will create substantial shareholder value to the extent it successfully caps costs across the value chain, primarily in the area of claims, by adopting robust claims administration systems, greater use of analytics for preventing fraud and adopting new methods of accurately pricing new business (like usage-based insurance). Shareholder value can also be amplified by writing higher margin products by identifying niche segments and greater engagement with global reinsurers, who are now (post the passage of the Insurance Laws (Amendment) Act 2015) expected to set up local offices. However, the industry must strive to maintain high governance standards and eliminate risks, particularly the relatively new ones such as cyber risk.
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Digital Insurer's CommentsThe combination of a large population, robust overall economic growth, rising income levels and low insurance penetration rates (overall 3.3% – life 2.6%, non-life 0.7%) make India a prime market candidate for growth-minded insurers.
Traditional distribution channels are well entrenched. The explosion of the web, telephony and e-commerce, fueled by the Indian government’s strong support of digital infrastructure, seem to suggest a path to growth via strictly digital means.
Insurers such as ICICI and HDFC are already responding with mobile apps, online channels, self-service tools and social media initiatives that are easy to access, provide detailed policy and claims information, allow purchase and renewal, and assist in tracking claims status.
There is massive opportunity in India. There is also competition. Expect the digital competition, in particular, to be especially fierce.
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