India is one of the fastest growing and major economies in the world. The chances of growth of insurance and reinsurance is certainly very good in India. Despite being the second most populated country in the world after China, the demand for insurance in India is still very low. The Indian insurance market, which currently accounts for around 2 % of the world’s total insurance premiums, is having a huge business opportunity. As per the report of Swiss Re, India is the fifteenth largest market in the world and fourth largest market in Asia.
Despite being vulnerable to natural disasters, the Indian market is significantly underinsured (below 1 percent) when compared to global average of 6.1% and Asia pacific average of 1.4%. There is no doubt in this fact that India offers a huge opportunity for reinsurers with a rapidly growing middle class and a comparatively low insurance penetration.Huge natural catastrophes such as Cyclone Phailin in 2013, Chennai floods in 2015 and Kerala floods in 2018 have caused several large losses to the Indian reinsurance markets, keeping it in deficit. The August 2018 floods in Kerala has also been very disruptive. Pricing remains a challenge in the market, but reinsurers are anticipating a market correction caused by a decline in investment income and the expected IPOs of several insurance companiesThe much-awaited change in the Indian reinsurance market finally took shape towards the end of FY 17 -18 when foreign reinsurance branches received their licenses to operate in the Indian market. India today is a land of opportunities and the feel-good climate is reflected among reinsurers and insurance market participants, who have received a shot-in-the-arm by way of the second phase of liberalization of the sector.
The size of the reinsurance market in India is estimated to be about Rs 38,000 Cr ($ 5.93 billion) where life segment contributes less than 5 per cent. The rest is general insurance business.
GIC Re is the Leading reinsurer in India and GIC Re gets the Maximum out of this market and Branches of Foreign reinsurers contributes only a negligible portion of it. In the FY 2017-18 Premium of around Rs. 12461 Cr ($ 1.91 billion) was ceded outside India. GIC Re has emerged as a key reinsurance player in the domestic as well as international markets with its presence in Africa, Latin America, Europe, Asia and Russia. GIC Re has already laid the basis for India to become an international Reinsurance Hub achieving nearly half of its portfolio from international clients.India is moving up the table in the World Bank’s doing Business rankings as a range of measures including tax reforms, investor protection and insolvency rules are improved.
The cap on foreign direct investment has been lifted from 26% to 49% while international reinsurers have been granted licenses to open operations onshoreIndian Insurance Industry’s Highlights• Gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18, with Rs 4.58 trillion (US$ 71.1 billion) from life insurance and Rs 1.51 trillion (US$ 23.38 billion) from non-life insurance. The big boost to the insurance industry was the agriculture insurance initiative of the government – PMFBY that pumped in almost INR 20,000 Cr ($ 3 billion) in FY 17 to the overall industry premium base.
This initiative has made India the third largest agricultural insurance market in the world after the United States and China. These huge additional exposures have resulted in the reduction in gross retained premium percentages and increase in the volume of reinsurance support required.• PENETRATION ; DENSITY of Indian Market : Penetration: Life: 2.
8% General: 0.9 %Density: PE Life: INR 3,577 ($ 55) General: INR 1,171 ($ 18)• The overall Indian insurance industry is expected to reach US$ 280 billion by 2020.• In the world ranking, India is the 10th largest life insurance market and 15th largest non-life insurance market.• IRDAI has made it mandatory (effective 1st September 2018) for the new vehicle owners to buy a long-term (3 ; 5 years) third-party insurance cover.
This will bring about a stability in terms of price as well as compliance and would help in improving penetration in this segment.• The Market conditions of India are very tough in non-life reinsurance business. Prices are very soft in the Indian general insurance market and most of the insurers are incurring underwriting losses.
The market is soft both for primary insurer and for Reinsurer as well. Some of the Insurers in Indian market are making a strategic mistake to capture the market share by thinking that they could let go of the price and recover later. Some of the insurers have already burned their capital just to capture market share. Insurers are not realizing that if the only value they bring is a price discount, then next year the customer will go to other insurer who gives a price discount later.
Insurers are not realizing that they should disciplined from day zero and should be very careful on how they write their business and understand risk. It is a very technical business. Unfortunately, insurers are taking it like FMCG or banking industry. It is more complex than that.
