New Delhi: Strong underlying demand tailwinds are likely to push premium income of the Indian insurance industry to Rs 18 lakh crore by 2020, apex chamber ASSOCHAM said today.
The country will continue to be one of the fastest growing life insurance markets with annual gross written premiums of Rs 2.68 lakh crore set to grow by 13 to 14 per cent and reach Rs 5.17 lakh crore by 2015.
India will contribute 10 per cent of total global premium growth in this period and will be one of the few major markets to grow at double digit rates, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
The life insurance industry grew by 28 per cent during 2000 and 2010 in new business premiums, 27 per cent in annualised premium equivalent (APE) and 25 per cent in gross written premiums, catapulting India to top ten markets globally.
“But the level of protection as measured by sum assured to GDP is about 55 per cent relative to benchmarks in developed markets of 150 per cent to 250 per cent,” said secretary general D.S. Rawat.
The relentless focus on growing new business premiums has led to several inefficiencies in business practices, he said. Creation of short-term products, incentivisation of front-line managers and agents primarily on new business and limited profiling of customer needs resulted in low levels of profitability.
Between September 2010 and March this year, the industry registered negative growth of 13 per cent in APE. In the private sector, the negative growth was even higher at 32 per cent. In the first quarter of 2011-12, the slowdown continued with the industry registering negative APE growth of 23 per cent and private sector registering negative APE growth of close to 40 per cent.
Going forward, the focus of industry will broaden beyond growth to include two important aspects which has been largely ignored in the past – providing long-term savings and protection to consumers, and driving profitability in the core life insurance business through sustainable business models.
Mr Rawat said the market is likely to witness continued regulatory action in line with trends which are being seen among regulators across the world. Secondly, the Indian consumer is evolving rapidly.
“Consumers are increasingly becoming multi-channel. Studies show over 80 per cent of consumers across Asia use more than one channel across the purchase and usage process – especially for buying insurance products.”
With India on the cusp of a digital revolution, mobile and internet driven transactions are estimated to grow three to four times over the next five years. So the paradigm for success is likely to change, driven by discontinuities in regulation, customer behaviour and technology adoption.
Emerging winners will have to redefine their business models with careful consideration to strategic issues around agency, bancassurance, innovation, geographic footprint and value of existing customer franchise.
On the other hand, non-life insurance industry is estimated to grow at over 18 per cent till 2015 and reach a total size of Rs 90,000 crore from the current level of Rs 47,000 crore. With this trajectory, India will be one of the fastest growing markets in Asia and globally – next only to China among major markets.
Motor insurance will continue to remain the largest category, contributing over 40 per cent of industry premiums. India will become the third largest car market globally by 2020 with over 70 lakh cars sold annually, driving growth in motor insurance.
Total expenditure on healthcare will be Rs 20 lakh crore, creating significant opportunities for coverage through health insurance. The health insurance segment will grow the fastest and account for close to 30 per cent of total industry premiums by 2015.
Within health insurance, the government sponsored health schemes will grow the fastest while retail will emerge as the largest opportunity.
The country’s infrastructure expenditure over the next five years is likely to be Rs 47 lakh crore, creating opportunities for insuring these projects. Engineering insurance coverage for new projects will be an important area of growth, leading to opportunities in segments like commercial lines.
With small and medium enterprises growing at 20 to 22 per cent, the non-life insurance market will be particularly attractive for players who can bring in skills and more innovative practices to capture the opportunities.
An increase in penetration rate from 30 per cent to some 50 per cent in 2014-15 across large (about 10,000 customers with premiums in the range of Rs 10 lakh to 25 lakh), medium (80,000 customers with Rs 1 lakh to 10 lakh premiums) and small (102 lakh customers with less than Rs 1 lakh premiums) bases in the SME segment will drive a 2.5 times increase in premiums.
There is already evidence of increasing competition with the number of companies increasing from 16 in 2007 to 24 this year and further four to five in the pipeline, said ASSOCHAM.
Between 1999 and 2009, there were 23 districts in the country with GDP growth rates of 9 to 10 per cent. Between 2009 and 2025, 22 districts are likely to fall in this growth category. Further, the cities of today will be much bigger in size and will require a fundamentally different commitment in terms of resources.
For instance, Bangalore’s GDP in 2030 will be four times bigger than Mumbai’s in 2010. Or Kochi will be generating more or less the same GDP as Mumbai does today. Any strategic decisions based on just backward looking facts will likely miss out on these growth pockets and what it takes to capture share in them.
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, said ASSOCHAM.