While numbers certainly reveal something, they may not relay the complete story. India has crossed a significant milestone by reaching USD 100 billion threshold, however there is immense potential for the market to grow.
The Insurance industry has been at the forefront of economic development in India and has driven the growth of our gross domestic product (GDP) in the last decade. The gross premium in the Indian insurance industry has reached approximately USD 100 billion with approx. USD 71.1 billion from life insurance and USD 23.38 billion from non-life insurance, pushing the country’s sector into the league of larger insurance economies globally. In life insurance business, India is ranked 10th among the 88 countries, for which data is published by Swiss Re and 15th in global non-life insurance markets.
Post liberalisation and privatisation, the regulatory changes enabling growth in the domestic insurance industry started from the Insurance Law (Amendment) Act in 2015 which increased the foreign direct investment (FDI) limit in the insurance sector from 26% to 49% to help attract foreign investments in the sector. Since then, insurers have been allowed to raise hybrid capital such as subordinated debt and/or preference shares from both onshore and offshore investors, divest equity through initial public offerings.
The insurance regulator IRDAI with support from the Government of India has taken a multifaceted approach towards developing the local insurance market.
Creation of reinsurance hub
The Indian reinsurance sector has a good number of players (both domestic and cross border reinsurers) to promote a healthy and competitive market for reinsurance, and it is expected that the capacity will increase which will result in to the establishment of a reinsurance hub in India in near future. A number of factors including the recent regulatory changes, India’s geographic advantage of being located in the heartland of South Asia with conducive relationships with the Chinese and Middle Eastern markets, the emerging economy and the exposure to increasing natural catastrophes allows India to become a regional reinsurance hub and expand aggressively and inclusively.
The development and benefits of IFSC GIFT City in Gujarat (infrastructure, exchange control relaxations and tax benefits) has garnered interest of many insurers, reinsurers and intermediaries which demonstrates the potential of GIFT City to match up to global financial centres in Singapore, London, Tokyo and Dubai and further facilitate the creation of a regional reinsurance hub in India.
Risk based capital regime
The regulator is currently weighing the option of shifting calculation of capital of insurance companies to a risk based regimes from a solvency denominated regime. This will ensure light touch supervision for entities that manage their risk well and will allow them to maintain minimum capital to support its overall business operations in consideration of its size and risk profile. While there are serious fatalities that are predicted, in the coming years some form of price discipline may be implemented to create a balance and democratise the process of calculating capital requirements.
Indian insurance development has always been conventional and conservative in its approach, however, the rise of digital technologies are ushering in a more precise, data-driven era, creating huge opportunities for insurers to demonstrate their value and to reap the financial rewards of doing so. Parallely, today’s customers have greater access to integrated information and their behaviour towards seeking and purchasing insurance products has immensely changed. The lack of brand loyalty and the need for exemplary customer satisfaction compounds the competition between insurance providers and the requirement to innovate and create seamless products further intensifies.
Insurance companies are now embracing InsurTech disruptors instead of combating them and are developing enterprise innovation models. IRDAI is granting access to start-ups and aggregators and is also enabling the innovation sandbox experiment. IRDAI has recently released the ‘Report of the Committee on Regulatory Sandbox’ which recommends that a regulatory test environment is needed to foster growth in the insurance value chain and increase the pace of the most innovative companies, in a way that provides InsurTech in particular and the Fintech sector as a whole with flexibility in dealing with regulatory requirements and at the same time focussing on policyholder protection and managing risks in a controlled environment.
The Government of India has launched various social insurance schemes under various insurance segments that have instrumentally created more insurance penetration and sectoral growth. In April, 2016, the Government of India had launched Pradhan Mantri Fasal Bima Yojana (PMFBY), the flagship scheme of the government for agricultural/ crop insurance in India. Enrolments under the Pradhan Mantri Suraksha Bima Yojana (PMSBY) reached 130.41 million in 2017-18.
Industry experts have predicted that the government’s ambitious national health protection scheme- Ayushman Bharat scheme covering 100 million poor and vulnerable families with a cover of Rs. 5 lakh (US$ 7,723) per family of tertiary care and hospitalisation will be transformative for the insurance industry as it would have a major multiplier effect on a host of allied sectors like pharmaceutical, medical devices, data management, insurance hospitality and human resource management.
While the insurance sector regulator is rapidly taking the insurance market into the next phase of growth, other financial services regulators and law makers of the country are looking to holistically incentivise insurance market players. For e.g., some insurance products are covered under the EEE method of taxation, which translates to an effective tax benefit of approximately 30% on select investments and exchange control regulator has opened the market for offshore borrowings etc.
Having crossed a major milestone, the Indian insurance industry is expected to grow significantly by 2019-20, aided by the Centre’s Ayushman Bharat health insurance scheme.