Comment on factors impacting growth in Non-life insurance

INTRODUCTION

General Insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance. It is called property and casualty insurance in the U.S. and Canada and Non-Life Insurance in Continental Europe.

The total Gross Written Premium (GWP) for the Indian general insurance industry during FY 2012-13 was INR69,081 Crores (USD12,592 million) as against INR58,120 Crores (USD10,594 million) in FY 2011-12 representing an annual growth of a little over 18 per cent.

Ø ICICI Lombard’s total business at INR6134 Crores (USD1,118 million) is close to Oriental’s figure of INR6544 Crores (USD1,193 million).

Ø The industry business growth up to February 2013, over 2012, was 19.3 per cent as against 23.4 per cent in FY 2011-12.

DISCUSSION

 CONDITION OF NON- LIFE INSURANCE:

·        Non-life companies should improve their underwriting discipline and pricing should be based on their assessment of risks. Free pricing — where insurers can fix premiums and offer discounts — has also widened the choice for consumers.

·        Companies are offering customised products and also bundling insurance products. However, a consumer who buys a non-life product sees it as an expense. So, non-life insurance still plays second fiddle to life insurance. The premium collected by non-life companies in India is only a fifth of the amount garnered by life companies.

·        Higher disposable incomes will help push up the sales of non-life products — such as motor, health, property or fire insurance — to individuals. The creation of more assets will also increase sales of general insurance covers. Robust economic growth is, therefore, the key to improving penetration in the non-life business.

·        Health insurance is a major driver, with a 40% rise in the health premium during the period under review. Clearly, with rising health costs, there is growing awareness among consumers. However, pricing is a cause for concern with hospitals overcharging patients. Costs can be lowered if hospitals offer discounts to insurers based on volumes. A pragmatic solution is for hospitals to adopt low-cost models and a regulatory body to enforce fair competition among hospitals. This will be in the interest of both consumers and insurers.

FACTORS OF GROWTH:

·        Due to inflation-related increases in claims expenses, such as the rising cost of spare parts.

·         The inefficient underwriting practices in the industry also contribute to the high claims rates. For example, only 2.6% of claims were rejected by non-life industry in fiscal 2010-11.

·        The operational expense ratio of the Indian non-life industry deteriorated further in fiscal 2010-11 despite already being the highest globally.

·         This deterioration was evident among both public and private insurers. Operational expenses increased as insurance players continued to invest in the expansion of their business and to compete with incoming international players.

·         India’s Insurance Regulatory and Development Authority (IRDA) is contemplating an increase in the limit on foreign direct investment in insurers to 49% from 26%.

·        .The acquisition ratio of India’s non-life insurers declined in fiscal 2010-11 as new and low-cost distribution channels emerged, especially among private-sector providers, where acquisition costs are lower than among public insurers. As a result, total commission expenses rose by only 9.7% despite GWP growth of 19.8%.

·         Investment income for India’s non-life industry remained stable in fiscal 2010-11, primarily due to the strong performance by local equity markets during the year.

·         The industry’s high investment ratio continued to help the Indian non-life industry compensate for poor underwriting results.

NON-LIFE INSURANCE MARKETS IN CHINA AND INDIA ARE FAST GAINING IMPORTANCE IN THE ASIAN REGION: After a break in 2001, growth rates in the non-life insurance business resumed their faster pace.  It expected growth to substantially exceed that of most OECD markets. Nonetheless, it added, weak stock markets in 2001 and 2002 had taken their toll on insurers' capital bases, thus reinforcing the need to focus on underwriting quality.

·        Deregulation and phase-out of state ownership were fast reshaping the insurance landscape, and the industry would see further consolidation in the coming years.

·        This would lead to more concentrated and polarised markets. State-owned insurers were still a significant force in Asia - accounting for over a fourth of the premiums outside Japan, while foreign insurers - though making up some 40 per cent of all insurers - had only a 10 per cent market share.

·        Nevertheless, foreign insurers were poised to take on a more active role in the development of the region's insurance business over the medium to longer term, despite recent reticence in business expansion.

CONCLUSION :

In the long run the insurance industry is still poised for a strong growth as the domestic economy is expected to grow steadily. This will lead to rise in per capita and disposable income, while savings are expected to be stable.

The non-life insurance industry has been growing in excess of 20% over the last two years however the penetration was as low as 0.7% of the GDP in FY10. The key factors for growth include:

• Product pricing, innovation and simplicity
• Distribution
• Compensation
• Governance and regulatory changes
• Health insurance
• Innovative products to counter the competition
• Improved fraud control mechanisms