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question 49

The Insurance industry should be given time to adjust to regulatory changes in a phased manner aligned with a regulatory impact assessment. Comment

The Indian insurance industry seems to be in a state of flux. After a decade of strong growth, the Indian insurance industry is currently facing severe headwinds owing to:

• Slowing growth
• Rising costs
• Deteriorating distribution structure
• Stalled reforms

Indian economy and the insurance industry landscape

Source:IRDA Annual Report 2010-11

Despite strong improvement in penetration and density in the last 10 years, India largely remains an under-penetrated market.

Despite strong improvement in penetration and density in the last 10 years, India largely remains an under-penetrated market. The market today is primarily dependent on push, tax incentives and mandatory buying for sales. There is very little customer pull, which will come from growing financial awareness and increasing savings and disposable income.

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.

Insurance growth drivers in India

The demand for insurance products is likely to increase due to the exponential growth of household savings, purchasing power, the middle class and the country’s working population. Listed below, are the various underlying growth drivers for India’s insurance industry:Growing of the financial industry as a whole

• Growth of life and non-life industry
• Promoting innovation and removing inefficiency
• Competition and orderly growth
• Growth of specific insurance segments such as motor insurance

Emerging trends

• Multi-distribution i.e. increasing penetration through new modes of distribution such as the internet, direct and telemarketing and NGOs
• Product innovation i.e. increased levels of customization through product innovation
• Claims management i.e. timely and efficient management of claims to prevent delays which can increase the claims cost
• Profitable growth i.e. expanding product range, developing innovative products and expanding distribution channels
• Regulatory trends i.e. mandated regulatory changes by the IRDA to promote a competitive environment in both the life and non-life insurance sectors

Life insurance: key challenges

In FY12, the life insurance industry witnessed a decline in the first year premium collected which dropped from INR1, 258 billion in FY11 to INR1, 142 billion, a drop of approximately 10%. This was owing to the following challenges that the industry faced in

• Products strategy and design
• Cost
• Taxation
• Distribution
• Prospects and challenges of various channels
• Compensation
• Customer service
• Governance and regulatory issues