28-12-2012, 02:57 PM
Insurance Industry in India: Structure, Performance, and Future Challenges
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Executive
Summary
With the liberalization and entry of private companies in insurance, the Indian insurance sector has
started showing signs of significant change. Within a short span of time, private insurance has
acquired 13 per cent of the life insurance market and 14 per cent of non-life market. However, there
is still a huge untapped demand for insurance. Insurance companies have a pivotal role in offering
insurance products which meet the requirements of the people and, at the same time, are affordable.
Some of the challenges faced by the insurance sector pertain to the demand conditions, competition
in the sector, product innovations, delivery and distribution systems, use of technology, and
regulation. To understand the growth and development and the future prospects of this sector, this
colloquium addresses the following issues:
What will be the demand for insurance? What types of innovative strategies of insurance
education and awareness will we require to encourage the Indian consumers?
With the changes following bank participation in insurance, will the nature of competition in
this sector intensify?
What kind of competitive and risk pressures will the insurance businesses experience? What are
their implications for profitability, margins, and efficiency?
The average size of the polices will continuously decline as the insurance companies increase
the geographic coverage. As a result of this, the intermediation costs will go up. What are the
implications of these on average costs?
What will be the product market scenario?
Has the insurance sector benefited from the knowledge base of global companies?
To what extent have the technology gains in telecommunications, computer information, and
data processing contributed to increased efficiency and productivity of insurance companies?
INTRODUCTION
Insurance is the backbone of a country’s risk management
system. Risk is an inherent part of our lives.
The insurance providers offer a variety of products
to businesses and individuals in order to provide protection
from risk and to ensure financial security. They
are also an important component in the financial intermediation
chain of a country and are a source of longterm
capital for infrastructure and long-term projects.
Through their participation in financial markets, they
also provide support in stabilizing the markets by evening
out any fluctuations.
The insurance business is
broadly divided into life, health, and
non-life insurance. Individuals, families,
and businesses face risks of
premature death, depletion in income
because of retirement, health risks,
loss of property, risk of legal liability,
etc. The insurance companies
offer life insurance, pension and
retirement income, property insurance,
legal liability insurance, etc., to
cover these risks. In addition, they
offer several specialized products to
meet the specific needs and requirements
of businesses and individuals. Businesses also
depend on these companies for various property and
liability covers, employee compensation, and marine
insurance.
Competitive Challenges
As we enter our fourth year of business,
the dynamics of the business
has changed in good measure and
though the key variables remain the
same, the degree of their significance
over the next four years will rise as
most of the companies will be near
their break-even levels. The key competitive
and risk pressures that the industry would
experience can be highlighted as follows:
Multi-channel distribution footprint: Understanding the
science of multi-distribution channel management and
developing a robust field footprint will remain the most
distinctive competitive challenges for the new age insurers.
Managing the expectations of channel partners,
viz., banks, corporate agents, brokers, and advisory force,
and keeping the acquisition costs at manageable proportions
at the same time will help the new players reach
break-even relatively sooner. Increased rural penetration
of insurance will also be a fallout of the above factors
and will depend upon the spread that the distribution
footprint will help the insurer achieve.
Product Offerings and Market Scenario
The product market scenario has already started witnessing
some revealing changes which are an indicator
of what is to be expected. Product offerings can be
classified into two broad categories as we move ahead:
• Customized high-end complicated products aimed
at the high-end, financially-aware customer with
risk appetite. Key-man insurance and ULIPs will
belong to this segment.
• Simplified, OTC insurance products to cater to the
middle class and lower middle class segments. These
products will essentially be a combination of endowment,
money-back, and pensions in varying
proportion.
Can India Become a Global Player?
With regard to the Indian insurers turning global players,
I think it would be fairly premature to address this
issue now. The Indian insurance companies are themselves
beginning to come to terms with the dynamics
of a continent like India and it would be some time before
we can be a part of the global ventures. However, the
experiments in India would act as a reference frame for
our foreign partners as they make forays into other
nations.
Has the Market Expanded?
As of now, significant expansion of the market through
increased penetration is not in evidence. Whether the
sector is growing in absolute terms or whether there is
merely competition for existing business is a matter that
calls for strategic discussions between the insurers and
the regulator. Specific initiatives would be needed to
achieve higher penetration and for moving up the ladder
in comparison to other countries. It is necessary to
establish measurable benchmarks that will keep track
of this developmental aspect of liberalization.