The Indian Non-Life Insurance Sector: Present Status and Predictions for 2020

Low Penetration of Insurance Products

Insurance penetration in India, which is measured according to what percentage of the GDP the insurance premiums account for in one year, rose to 5.20% in 2009 from 2.71% in 2001. Unfortunately, from here, penetration saw a decline to 3.9% in 2013-14, according to a CRISIL-Assocham report published in 2015. The report goes on to point out that “India’s insurance penetration is far below the world average of 6.3%, largely due to limited financial awareness and literacy among the masses.”

In addition, although the country has seen life insurance penetration of 3.1%, which is close to the global average of 3.5%, India has fallen far behind the rest of the world in terms of non-life insurance, the penetration of which stands at just 0.8%, versus a global average of 2.8%. To understand how low this penetration is, let’s take a look at what the opportunity is for the insurance sector.

The Indian Insurance Sector
The Indian Insurance Sector

The Global Opportunity

According to a PwC report on Insurance 2020 & beyond: Necessity is the Mother of Reinvention, “The long-term opportunities for insurers in a world where people are living longer and have more wealth to protect are evident. But they are also bringing fresh competition, both from within the insurance industry, and a raft of new entrants coming in from outside.” This is also reflected in an infographic by Swiss Re, published in 2016, which shows that emerging markets, such as Asia, Africa, the Middle East and South America, offer long-term growth potential for the insurance sector, given that penetration as of 2013 stood at a mere 2.7% of the GDP of these markets, while the share of global premiums stood at 17%.

In comparison, penetration in the advanced markets was 8.3%. The earlier mentioned PwC report added that rapid urbanization was likely to be a key growth driver in the emerging markets, since it would lead to an increase in the value of assets that require insurance cover.

Catastrophe Losses & Need for Insurance
Catastrophe Losses & Need for Insurance
Are You Insured?
Are You Insured?

The Indian Scenario

According to figures released by India Brand Equity Foundation (IBREF) in April 2016, the general insurance market stood at Rs 78,000 crore, or US$11.44 billion, in terms of premium per annum, registering robust growth of 17%. In fact, the report says, “The Indian insurance market is a huge business opportunity waiting to be harnessed.”

The nation accounts for less than 1.5% of the total insurance premiums worldwide, despite boasting the second largest population in the world. In terms of premium volume, the nation is the 15th largest market, globally and is expected to grow in leaps and bounds in the foreseeable future. As of 2016, the industry consists of 53 insurers, of which 29 are non-life or general insurance companies.

So, What is Non-Life Insurance?

According to Understanding Insurance, general or non-life insurance protects the policy holder’s assets, including the home, vehicle and even health, against loss and damage. Usually non-life cover offers a cushion against various types of risks, such as accidents, flood, fire, earthquake, theft and so on. Various types of policies are fall under the non-life or general category, such as home insurance, automotive, medical and travel insurance.

Given that Indian law makes vehicle insurance mandatory for anyone who owns an automobile and given the sky-rocketing healthcare costs, automotive and medical insurance have been doing much better than other types of non-life policies. What people possibly need to understand is that a home often means a lifetime of saving for the average Indian and protecting it against natural and manmade disasters is therefore not only recommended but imperative.

Market Share of Private Insurers in India

Insurance Market Share in India
Insurance Market Share in India

Growing Need for Home Insurance: A Worldwide Perspective

While there is low penetration, the need for homeowner’s insurance is soaring. According to the figures released in January 2015 by Munich Re, catastrophe losses have risen exponentially since the 1970s, with 980 loss events across the world in 2014 that cost insured losses of more than $30 billion worldwide. In fact, 2014 saw the highest number of catastrophic events over the past 30 years. In fact, according to the Overseas Development Institute, while advances in technology, availability of data and the ability to respond to disasters much quicker has helped lower losses and save lives, economic losses through such events are expected to by 160% higher by 2030, as compared to 1980.

There is no doubt that natural calamities and man-made disasters will continue to wreak havoc, underlining the need for adequate cover, especially for the one thing that offers the most security for human beings – a roof over our heads.

Home Insurance Gives Hope During Natural Disasters
Home Insurance Gives Hope During Natural Disasters

India Has Seen Its Fair Share of Catastrophes

Even as the memories of the devastating tsunami of 2004 begin to fade, India saw a fresh onslaught of natural and man-made disasters that have only devastation of life and land in their wake. Over 2015 and 2016, an unprecedented number of calamities have befallen Indian all across the country. The floods in Kashmir, followed by floods in the other end of the country, in Chennai, claimed lives, property and left behind memories that will haunt survivors for a long time to come. More recently, the man-made tragedy of the fireworks explosion in Kerala, followed by the forest fires across Uttarakhand, fire followed water in wreaking havoc. People who had the foresight to opt for home insurance and other forms of insurance, at least there was something to support them in their time of need.

In fact, according to a DNA India articles published in January 2016, insurers responded to claims worth Rs 4,800 crores following the Chennai floods. With more than 50,000 claims being filed, a large majority were related to property damage and loss.

In an interview with Business Standard, Chief of Underwriting and Claims at ICICI Lombard, Sanjay Datta said, “Home insurance, as a segment, is hugely under-penetrated. Although a home insurance policy can help ease the financial burden that arises out of severe disasters such as floods, storms, earthquakes and riots.”

Home Insurance in India
Home Insurance in India

Role of Home Insurance During Catastrophes

According to statistics released in early 2016 by the Insurance Regulatory and Development Authority of India (IRDAI), the net claims settled by non-life insurers for 2014-2015 stood at Rs 55,232 crore from Rs 49,179 crore in 2013-2014, representing an increase of 12.31%. The overall claim settlement ratio also saw an increase from the previous year. Home insurance is possibly the one silver lining for a family that might have lost the roof over their heads to a calamity. In fact, following the Chennai floods in 2015, it was the reimbursement of claims that helped thousands get back on there feet. And yet, home insurance sees huge underpenetration in the country.

Benefits of Home Insurance
Benefits of Home Insurance

Low Penetration of Home Insurance

A recent survey, conducted by ICICI Lombard and published in March 2016, found that 93% of the respondents did not have home insurance! This was the reality in India, despite the fact that the survey discovered that 62% of the respondents were aware of what they stood to gain by taking on a home insurance policy. The survey went on to reveal that while 59% intended to buy a policy if the premiums were lower and the claim process was simplified, most homeowners did not believe that they needed to cover their most prized possession, their home, through insurance.

Low Penetration of Home Insurance in India
Low Penetration of Home Insurance in India
Insurance Needs Will Only Rise
Insurance Needs Will Only Rise

The Way Ahead

The Indian parliament passed the long-awaited Insurance Laws (Amendment) Bill in 2015, hiking the limit on foreign investment in the insurance sector from 26% to 49%. The law aims at facilitating the growth of the sector by easier barriers to entry and encouraging market consolidation. With the World Bank forecasting a rise in the Indian GDP from 6.9% in 2013 to 7.9% in 2018, experts believe that rapid economic growth, coupled with rising income levels and life expectancy, would boost the growth of the insurance sector in the country over the coming years. However, a 2015 article in Forbes points out that new entrants in the market would need to find ways to attract the rapidly growing middle class population in India to gain market share.

Given the worrying survey findings and the fact that buying a home is often the largest investment a middle class Indian makes, awareness of the advantages of adequate cover and the pitfalls of leaving your most precious possession unprotected against the elements, will also need to be a focus area for insurers in the country.

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