The insurance sector is one of the most promising sectors in India. The market size went up to US$ 47.89 billion in 2007, from US$ 21.71 billion in 2000, increasing at the rate of 120 per cent. Between 2000 and 2007, overall premiums sustained an average growth rate of 11.96 per cent. This was one of the most steady growth patterns witnessed amongst emerging economies in Asian as well as global markets. Increasing from just one company a decade ago, there are 22 life insurers in the country presently. In fact, according to Insurance Regulatory & Development Authority (IRDA), the number of registered general insurers has gone up to 21. As a major portion of the business comes from urban markets, the next step for these firms would be to tap semi-urban and rural markets.

Further, the country's insurance sector is likely to grow 17 per cent in the current financial year if the economy continues to expand at the pace as it did in the September quarter of 2008. India’s economy grew at 7.6 per cent in the July-September period."If GDP grows 7.6 per cent, premiums would grow 17 per cent, according to Mr J Hari Narayan, IRDA Chairman. Life insurers, which constitute the bulk of the Indian insurance market, grew their business by 23.3 per cent to US$ 18.94 billion in 2007-08, while general insurers posted growth of about 14 per cent in premium income to US$ 6.07 billion, according to IRDA data. Higher per capita income, domestic savings and availability of more instruments for parking surplus funds have facilitated growth in the activities of financial services.

With the largest number of life insurance policies in force in the world, the penetration of insurance in India as a percentage of gross domestic product (GDP) stood at 4.8 per cent, as on February 2008, against 1.2 per cent in 1999–2000. Of this, life insurance accounted for 4.1 per cent and non-life insurance for 0.6 per cent. Also, as per industry estimates, out of 78 per cent Indian households that are aware about life insurance, only 24 per cent own a policy. A combined ICICI Prudential Life Insurance and IMRB survey, conducted in three metros—Delhi, Mumbai and Chennai—takes into account households having average monthly income of US$ 816.51 per month. Such households on an average have two policies. Further, 79 per cent people prefer life insurance over other tax saving instruments like post office savings, Equity-Linked Saving Schemes and fixed deposits.

In the month of November 2008, 16 general insurance companies, both public and private, together collected US$ 452.83 million, against US$ 452.57 million in the same month last year. 12 private sector players clocked a marginal growth of 1.2 per cent in the premium collection, according to IRDA data. However, April-November premium collection stood at US$ 4.23 billion compared to US$ 3.77 billion, up by 9.57 per cent. During the first eight months of the current fiscal, premium collection by private players recorded a growth of 15 per cent at US$ 1.73 billion. Private players witnessed 31 per cent growth in first premium income (FPI) and 27 per cent growth in sales of number of policies (NoP).

The insurance giant, LIC, has already mopped up over US$ 407.68 million ending December 2008 and it is expecting to garner around US$ 50.9 billion, from its newly launched product, Jeevan Astha, depicting a trend where people are putting money in safe and long-term investments along with the added life cover. State-owned Life Insurance Corporation of India, the country’s largest life insurer, is also leading the way in expansion plans. The corporation is planning to recruit 10,000 employees and around 250,000 insurance agents across the country this year.

Growth of private insurance companies

SBI Life Insurance is planning to raise the number of branches to 250 branches this financial year. Further, ICICI Prudential Life Insurance has stated that in the last two years, the company had expanded the distribution network by increasing the number of branches to over 2,090 from 177. Aegon Religare Life Insurance, in its first year of operations is actively scaling up to open 51 branches, of which 48 are already operational across 39 cities. Max New York Life Insurance is planning to increase the number of branches to at least 250 every year going forward. This will expand Max New York Life’s distribution network from 311 offices in June-end 2008 to almost 900 agency offices and 700 rural offices by FY 2012.

A report - 'Insurance Sector Futuristic Growth'—released in August 2008, by ASSOCHAM revealed that bolstered by intense marketing strategies, private insurance players have rapidly increased their market share. The share of state-owned insurance companies like General Insurance Corporation (GIC), Life Insurance Corporation (LIC) and others is about 70 per cent currently. It is estimated that its growth rate could even exceed 140 per cent. State-owned insurance companies are now coming out with variations and new policies now that IRDA has given approval for launch of new products. Private insurance companies however, have a larger number of policies on offer, with more competitive premium amounts and maturity periods. The private sector insurance players have now also made inroads into the rural markets which, till recently, were dominated by the state-owned companies.

Private insurance companies with innovated customised policies for different sections such as offering life cover along with investment opportunities with a long-term perspective or a women-oriented policy targeting the increase in the number of working women has led to a demand for life insurance policies, which in turn has helped women through a micro-entrepreneurship initiative offering them moreflexibility.

Children's products such as ICICI Prudential Life's 'SmartKid', Birla Sun Life's 'Children's Dream Plan', or HDFC Standard 'Life's Young Star Plus', are on a consistent growth path. According to industry estimates, currently, 20–30 per cent of business of many companies comes from children-specific insurance policies alone.

A Pricewaterhouse Coopers report, 'Healthcare in India: Emerging market report 2007' stated that valued currently at US$ 34 billion, the Indian healthcare sector is likely to grow to around US$ 40 billion by 2012. The health insurance sector which is offered by both life and general insurers is growing currently at 50 per cent and is being promoted by the IRDA. Health insurance is expected to grow to US$ 5.75 billion by 2010, according to a study by the New Delhi-based PHD Chamber of Commerce and Industry.

Only a miniscule 10 per cent of the Indian population has some kind of health insurance, therefore there is a huge potential market for health insurance. A joint report by McKinsey and CII has estimated the number of potential insurable lives at around 315 million. In 2006–07, the rapidly burgeoning Indian health insurance business grew 40 per cent to touch US$ 812 million. In some states, the government is partnering with the private sector to offer coverage at low costs.

Life Insurance Corporation (LIC) has now entered the health insurance market and has mobilised premium income of US$ 21.23 million in the last two months of 2007–08. Birla Sun Life on January 7, 2008 also announced its plans to enter into the US$ 40.75 billion health insurance business with the launch of two plans nationally. ICICI Prudential Life on January 5, 2008 launched Health Saver, to help consumers meet their current healthcare expenses and also invest for future healthcare expenses.

The current focus on health insurance business will also further boost the third party administrator (TPA) business. A third party administrator in an entity that processes insurance claims for the general insurers that issuing health and medical insurance covers. TPAs offer the much needed in-between services to the customers and insurance companies by managing the claims. By 2012, the Indian TPA industry is likely to grow to US$ 3.18 billion in size. With approximately 30 players, the present size of the TPA sector is around US$ 934 million and is growing at 40 per cent. Further, IRDA has constituted a committee in January 2009 to evaluate the performance of the third-party administrators (TPAs) in health services.

Bancassurance segment

The bancassurance segment has been growing consistently pace and is competing with the traditional sale of insurance by agents owing to the keenness of banks to augment other income (fee-based income). Global insurance consulting firm, Watson Wyatt Worldwide in 'India Bancassurance Benchmarking Study 2006-07', had said that both life and general insurers were bullish about prospects of insurance penetration in the rural markets. According to the study, about 30 per cent of the life insurers have indicated that by the year 2010, rural insurance business will constitute between 16-20 per cent of their total bancassurance new business premium.

Bankers and insurers are both upbeat about the future of the bancassurance segment and it is expected to contribute about 50 per cent or more in the life insurance segment by the year 2010. It has also contributed significantly to the business of major insurance companies like Life Insurance Corporation (LIC) and SBI Life.

The growth in the bancassurance for insurance companies wholly depends on the number of bank branches that actively dispense these products. According to industry sources, private and foreign banks are biggest mobilisers of insurance premium despite public sector banks having a wider reach. In August 2008, bancassurance accounted for 35 per cent of the premium collected by private players. In 2006–07, that figure was about 17 per cent.

Rural insurance

The Indian rural market offers tremendous growth opportunities for insurance companies. According to a survey 'India Invest Incomes and Savings Survey 2007' by IIMS Dataworks (a Noida-based retail finance research firm), 58 per cent of India's 105.4 million insured people were from the rural areas. Yet, urban India was ahead in terms of penetration (47 per cent), or the number of policyholders compared with the total population. This meant that almost one out of every two paid workers in urban India was insured, while it was only 27 per cent in rural areas. With increased IRDA focus on the sector, growth rate in the rural sector has been picking up. Reliance Life Insurance recorded a growth of 150 per cent in rural policies against 140 per cent growth in urban policies, in 2007–08.

According to international consultancy firm Celent's report—'Selling Life Insurance in Rural India—India's rural market revenues are expected to grow as much as four times to reach US$ 2.9 billion by 2015. Over 70 crore people reside in the rural areas of the country with insurance penetration rate as low as three per cent providing a huge opportunity for life insurance firms. An analysis of data from seven life insurers for 2007–08 reveals that insurance firms have exceeded their individual targets laid down by IRDA in rural India. ICICI Prudential Life, for instance, covered 117,000 customers in rural areas in 2007–08, as against its target of 25,000. SBI Life sold 22 per cent against its expected target of 18 per cent. Life Insurance Corporation of India (LIC) has set a target of four million policies in rural areas in 2008–09.

R P Singh, Executive Vice President & Head, Emerging Markets for Max New York Life reveals that about 74 per cent of the national population falls under rural category and there is huge scope for exploring this market. According to him, overall about 500,000 policies have been sold to the rural sector so far."We plan to ramp up the scale to 100 hubs and spokes by the end of this year by launching our services in other states like Gujarat, Maharashtra," he added. Kotak Life Insurance is adding 3 new branches in Ambala, Karnal and Hissar to take the total number of branches to 17, according to Yog Raj Sharma, national sales head (Tied channel), Kotak Life Insurance."We are ramping up our distribution significantly to reach up to the Tehsil level and plan to launch branches in the rural areas to increase our present market share of 20 per cent in northern states. With new branches coming up, we will be able to take our services to other semi-urban and small towns like Kalka, Pinjore, Ramgarh etc. Overall Kotak Life Insurance sold 25 billion new premium policies till September end and recorded a growth rate of 114 per cent in the first year premium income.

Global companies

The booming domestic insurance market along with saturation of markets in many developed economies has made the India a very attractive destination for global insurance majors. Major global names already having a presence in the Indian market though JVs with Indian firms including French life insurance company Sogecap, US-based American Int. Group (AIG) Max, Tokio Marine and Fire of Japan, Cardiff SA of France, and UK-based Prudential, IAG which has tied up with SBILife.

Some of the other major joint venture companies in this industry are Bajaj Allianz, ING Vysya, AMP Sanmar Assurance Limited, HDFC Standard, Birla Sunlife, Aviva Life Insurance, Kotak Mahindra Old Mutual, Met Life, Royal Sundaram, and ICICI-Lombard among others.

Many more are to soon enter the Indian market:

• The latest entrant has been QBE Holdings (AAP) Pty Limited, a wholly owned subsidiary of QBE, Australia which has tied up with Raheja QBE General Insurance Company Limited, a joint venture general insurance company promoted by Prism Cements Limited, India.
• US health insurers, Aetna (a 158-year old company with total revenues for the calendar year 2007 at US$ 27.6 billion and net income at US$ 1.8 billion, is interested in setting up stand-alone health insurance companies.
• CIGNA, another US-based company (a health insurer, and it also provides life, accident, health and expatriate employee benefits insurance coverage in a few international markets) is interested in setting up stand-alone health insurance company.
  UK-based company, Bupa, is also interested in setting up stand-alone health insurance company.
  American company Ace, a leading global commercial property and casualty insurance group, is looking at entering the life and non-life sectors.
• US-based Travelers Group (Travelers is a big underwriter of property and casualty insurance in the US and reported a net written premium of US$ 21.1 billion in 2006 is interested in the non-life sectors. It is planning to sign an agreement with Indian engineering major L&T.

Major investments

• Reliance Capital is planning US$ 432.26 million as investment for its insurance business over the next three to five years.
• Max New York Life Insurance has announced a strategic business alliance with ALEgION Insurance Broking wherein, the latter would sell Max Vijay in Kerala and Tamil Nadu. Under the first of its kind distribution initiative, ALEgION will distribute 'Max Vijay' through a fleet of Maruti vans, which would be used as mobile financial service distribution offices.
• The largest insurer in the country would also be investing another US$ 3.67 billion in government securities. This would take LIC’s total investments in the remaining period of the current fiscal to around US$ 10.19 billion, over and above the US$ 20.87 billion it has already invested in the first eight months of the current financial year.
• Bharti AXA General Insurance (a JV between the Bharti Enterprises and AXA) is planning to invest US$ 152.92 million spread over the next five years.
• Ranked among the top five life insurance companies, Birla Sun Life Insurance is planning US$ 274.30 million as investment for further expansion. It is presently the fastest growing life insurer in 2008–09, with a 187 per cent growth in new business during the first quarter.
• In the first quarter of 2008–09, insurance companies have invested US$ 3.18 billion in equities, which is four times of what was invested a year ago.

Government Initiatives

The Government has taken many proactive steps to give a boost to this sector:

• The Insurance Regulatory and Development Authority (IRDA) will announce guidelines for mergers and acquisitions (M&A) in the insurance sector by the end of March 2009. The regulator is formulating the guidelines in consultation with the Institute of Actuaries, IRDA Chairman, Mr J Hari Narayan. IRDA has cleared 288 new insurance products this year (2008).
• Earlier in December 2008, IRDA has allowed insurers to acquire up to 20 per cent debt and equity in an infrastructure-related company, compared with 10 per cent earlier. According to IRDA, the move is aimed at enhancing the flow of insurance funds to meet the present needs of infrastructure financing. Relaxing the investment norms further, IRDA has allowed insurers to invest an additional 5 per cent in debt instruments of infrastructure and housing companies, over and above the 20 per cent ceiling, with a prior board approval. The country's largest insurer, LIC, already holds over 10 per cent in a host of companies, which is likely to increase further.
• IRDA has constituted a panel that will monitor the role of TPAs and evaluate their performance in current health insurance market and make suitable recommendations clarifying their utility to the future growth of the health insurance industry.
• Government is planning to ease restrictions on foreign investments in insurance, banking and pensions, and allow foreign direct investment (FDI) investment of 49 per cent from the present 26 per cent.
• IRDA has removed administered pricing mechanism, i.e., de-tariffing in respect of fire and engineering along with motor insurance of general insurance for premium, effective from January 1, 2007.
• The control rates on fire, engineering and workmen's compensation insurance classes have been removed from September 1, 2007.
• Several states aggressively offering public health insurance schemes to their rural poor. A host of private players are rushing with their offerings, sensing huge opportunity in this segment some state governments have also taken a dynamic role in this sector.
• In an arrangement with the regional rural banks (RRBs), the West Bengal government is planning to extend insurance facilities to farmers in the 60–70 years' age bracket through a tie-up with IFFCO-TOKIO General Insurance.
• The Haryana State Co-operative Supply and Marketing Federation Limited (HAFED) facilitated weather-based insurance coverage to contracting farmers through AIC. 50 per cent of the premium for this insurance, which is US$ 5.863 /acre, was paid by HAFED. 25 farmers having 145 acres availed this opportunity in 2008.
• The Government of Andhra Pradesh after piloting the 'Arogya Sri' health insurance scheme in three districts plans to issue health cards to 18 million BPL (below the poverty line) families. As a result, about 60 million of the State's 80 million people will have insurance cover.
• The Karnataka Government has partnered with the private sector to provide coverage at a low cost in the Yeshaswini Insurance scheme to provide for major surgical operations, including those pertaining to pre-existing conditions, to Indian farmers.

The Road Ahead

In its report— 'Insurance Sector Futuristic Growth'—ASSOCHAM has stated that India's insurance sector is likely to reach US$ 46.25 billion by 2010. The report said, "The total insurance business will reach a level of US$ 46.25 billion in the next two years from the current level of US$ 1.15 billion." Private insurance business is likely to see a 140 per cent growth rate due to the aggressive marketing techniques used by them. Conversely, state-owned insurance companies would see a 35–40 per cent growth rate.