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GIC-RE: Indian Insurance Market

Always Attractive for Indian Players
By Ashok Kumar Roy, CMD, GIC Re

As we complete the first quarter of 2015, it is time to ponder over what we have achieved, what we missed and what need to be our priorities in the months ahead. Today India stands at a cusp with a large digitally enabled middle class that seeks growth and change.

Our foreign exchange reserves have been steadily increasing and now the Indian Rupee has also stabilised. Our Economy is well equipped to withstand any shocks and tremors. The Indian stock markets are also performing well and are among the top performers of 2014. Our foreign funds inflows are indeed encouraging and fiscal deficit and inflation are on a slide down. Politically too we have a popular and stable government at the Centre.

Demographically too we are at an advantage today. We are a nation of young and will continue to be so for quite some time in the future. By 2020 we are expected to be 1.3 billion and 60 per cent of these (around 780 million) are expected to be in the productive age group of 15 to 59.

India’s national mission for Financial Inclusion “Jan Dhan” has reached financial services including banking, insurance, pension and credit to over 9 crore persons till December 2014 after its launch in August 2014.

Overall it is a heartening to note that economic scenario for India is turning around. The economic centre of gravity too has been slowly moving away from the west to the east.

We, however, had our fair share of natural catastrophes during 2014; Kashmir Floods, Cyclone Hudhud, Pune Landslide and many more. 2013 too had Uttarakhand floods and Cyclone Phailin. And these had the potential to roll back the gains that we made on the economic front. Almost 85-90 percent of the losses that these catastrophic events cause are uninsured. This gap between the insured losses and economic losses needs to be bridged. The insurance penetration, especially that of non-life insurance has to be increased substantially.

The Indian Insurance market has always been attractive for global players. From 4 players in 2000 to 28 in 2014, it has clocked an impressive 13% year on year growth with lots of hope for the future ahead. Today the Indian market is flush with opportunities for anyone who can feel the pulse of the customer, insurance market included.

The Indian insurance industry has a vast untapped potential ahead of it and is at a very interesting phase today. Rural India is in an overdrive and spending on education, health, housing and better lifestyle takes precedence over all others. Even the bottom of the pyramid section of the society is not left untouched by the insurance sector as several government sponsored insurance schemes have brought them under some kind of cover.

The retail customer has become more aware and involved with what he wants and what he gets. Retail lines like motor and health are leading the growth rally of the Indian non-life insurance market. However there is still a lack of clarity and trust for the insurers besides lack of awareness about the insurance products and services available. Due to this the price becomes a differentiator and the insurers also in an effort to shore up their top lines are ready to cut prices to any extent which tells upon the health of the industry as a whole.

As we develop we are bound to create newer risks and exposures. Cybercrimes and liability are a case in point. The effects of climate change lead to increasingly frequent and ferocious natural catastrophes and we need to not only provide insurance cover to these emerging risk but also need to work out innovative solutions to tackle these risks.

Going ahead the Indian insurance Industry will need to improve the quality of its database and also encourage sharing of data across industry. This would require standardisation which is really not happening at the pace warranted. The real-time analysis of risk accumulations and exposures is a desirable goal. Also, the country needs to be intensively modelled for all Nat CAT perils.

The long-pending Insurance Laws (Amendments) Bill has now been passed by the Parliament. The law has hiked the foreign investment limit for insurance companies to 49% from 26%. The law would facilitate growth, and also encourage consolidation within the market. To increase the Indian insurance penetration levels and improve solvency standards, the sector needs substantial capital, which would now come by way of the enhanced foreign investment limits.

The availability of good quality human resource and talent to sustain the growth opportunity will of course be a great challenge as we are a service industry and manpower is a critical component of any service industry especially the financial industry. The industry needs to relook and revisit its manpower planning strategies.
A couple of years back I read the following quote in a leading Indian daily. This should very aptly sum up the whole thing about the potential India has today in all areas.

“When I first joined Airbus in India in 1996, the forecast for India was less than 200 airplanes for 20 years,” he said. “We had to patch Pakistan, Sri Lanka, Bangladesh and everybody else on top of it to make it even 200 airplanes. Now we are doing deals which for one airline are more than 200 airplanes, so either our forecasting was wrong or the market went much further than we thought.”  - Airbus Country-Head.

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