With penetration levels of 0.9 percent and a population of 1.33 billion, the insurance outlook in India is positive. In fact, the future is so bright, this is one forecast that probably won’t need a hedge. So, how and when will this come about?
In 1991, when India embarked on the liberalisation programme and opened up the country for foreign investment, the per capita income was US$365. In 2017, the per capita income was US$1,950—a growth of 4.35 times.
For the most part, the people of India were quite content with the living conditions—even with their challenges—until they started accessing international markets through job opportunities, conferences and leisure travel. Rising incomes, access to cheap personal finance, and the availability of international products provided the Indian population with freedom of choice.
This is where India’s new wave of entrepreneurs entered the picture. They travelled, reverse-engineered products, built new features unique to India and stripped off things that aren’t necessary for the Indian market—all while taking products to market at appealing prices. This encouraged other international companies to set up bases in India and the SME sector began to take off.
A rise in the consumption of modern items that were once considered luxuries, and in home-ownership rates, shaped changes in consumption patterns and distribution methods. The success of homegrown online insurance stores continues to indicate changing consumer preferences.
- Air-conditioners: 4 percent penetration. (7 percent of all air-conditioners are sold online.)
- Automobile market: 2.25 percent[1] penetration.
- Mobile phones: 36.2 percent penetration. (This has grown by 50 percent in the last 5 years.)
With growing disposable incomes, the proportion of the Indian population that is transitioning from the basic physiological level of Maslow’s hierarchy of needs to the next levels of safety, belonging and esteem is growing rapidly. This is where insurance kicks in.
Are existing products still relevant?
In the P&C insurance industry, most products were built a generation ago, with few created more recently. Products have been de-tariffed and there are many classes of businesses where premiums are still being adjusted and discounted based on tariff pricing that is no longer mandatory to follow. This is not unique to India.
The average age of the Indian population is 29, with 50 percent of the Indian population younger than 25 years of age. More than 65 percent of the population is below 35 years of age. This segment thinks and behaves very differently to the target audience for whom the existing products were originally designed.
This generation’s methods of accessing distribution and identifying products, and the level of service they expect, is in stark contrast to previous generations. Some retail products may shift to group purchases with those who demonstrate heterogeneous behaviour. As a result, underwriting methodologies may need to be completed in real time during the life of the policy. Data science needs to identify pockets of homogeneity within these heterogenous groups so that behaviours are measured and managed accordingly.
Health, wealth and happiness
Indian culture and social behaviour are going through unprecedented and rapid changes in the pursuit of health and wealth. According to the Global Wealth Report from Credit Suisse, India is the fastest growing region for millionaires. The country had 39,000 millionaires in 2000, and 343,000 in 2018. In the next five years, the number is expected to surpass 500,000[2].
The Indian population is slowly beginning to buy items based on value rather than on price alone. People are willing to spend more on luxury watches, luxury automobiles and premium travel. They are also spending more on exclusive medical facilities and treatments.
With changing lifestyles and the growth of personal wealth, people are demanding more. The pace of evolution will differ from region to region, but India has the potential to emerge from its current demographic dividend phase into an entirely new status quo.
The outlook for the Indian P&C market looks very promising. Classes of businesses may be similar, but what they’re comprised of could vary:
Motor insurance
- Traditional motor insurance
- Pay-as-you-go
- Heterogeneous group policies
Health insurance
Health insurance as a product category has the potential to be a P&C “pull product”, rather than a “push product”, which it has traditionally been.
- Traditional products
- High-value medical insurance cover
- Foreign-currency-denominated insurance products
- Smart-tech-enabled products, which will offer live pricing tools with progressive discounts during the tenure of the policy
- Group buying (apart from employee schemes): Health co-operatives could be set up, so manufacturers can share data and employ dynamic pricing tools
- Government schemes
Property and engineering insurance
The maturation of the market, economic perspectives and growth of SMEs will enable the purchase of adequate insurance. Most infrastructure projects are financed. Insurance and finance go hand in hand.
- Underinsurance will gain attention.
- Population demands will increase infrastructure projects.
Rural infrastructure improvements
Wastage of unmonitored irrigation water is the highest cost contributor for farmers in the crop-production cycle. The agricultural sector uses up to 78 percent of fresh water available in the country. India has among the world’s largest areas of non-irrigated (rain-fed) agriculture.
- The Ministry of Water (Ministry of Jal Shakti) is tasked with the purification of rivers, starting with the Ganga and its tributaries, to provide clean drinking water in rural areas. This will generate insurance opportunities.
Rural, poverty-alleviation and debt-protection insurance
It will be some time before India can effectively address its poverty. Until such time, Government aid will be needed in the case of emergencies. Insurance programmes could be structured to reduce risk to the Government’s budgets during unplanned events. This needs to be looked at more holistically—the insurance industry could work with the Government in one coherent programme.
- Occupation-related insurance: For example, agriculture insurance.
- Property- and personal possessions related insurance: Along the lines of mass health insurance, a policy could be designed where, in a CAT event, population below the poverty line would be paid claims under an insurance policy. The Government could buy this policy, which could contribute to addressing the protection gap.
- Health related: For example, the Universal Health Scheme (Ayushman Bharat Scheme).
According to a recent study by the Associated Chambers of Commerce, India’s P&C industry is expected to expand to a premium volume of US$24.7 billion in the next two years, registering a healthy 16.7 percent growth, adjusted for inflation, primarily benefitting from strong crop-insurance growth.
In the medium to long-term, we believe the industry will grow rapidly. Different product variations or entirely new products will be offered for different segments through multiple distribution channels. While there could be some cannibalization of revenues between channels, they will co-exist and everyone will have an opportunity to contribute to the growth of the Indian P&C industry. For insurance companies navigating channel conflict and product conflict will becoming an important challenge.
Today there are 34 P&C companies in India with a capital base of INR 150 billion[3]—and the industry will need significantly more capital. New insurance companies may start operations in India.
IRDAI: Safeguarding the industry
The Insurance Regulatory and Development Authority of India (IRDAI) is introducing modern accounting standards and risk management. The introduction of Exposure-Based Solvency and future IRFS 17 will put additional pressure on capital requirements. Companies will need to attract capital and talent to harvest growth; capital will need to be managed efficiently; and a balance between capital, reinsurance and business will be needed. There will be challenges, but the future is exciting.
[1] Compiled from the data of community.data.gov.in
[2] Compiled from Credit Suisse’s Global Wealth Report
[3] Compiled from Handbook on Indian Insurance Statistics F.Y. 2017–2018, Insurance Regulatory and Development Authority of India (IRDAI).
