Insurance Market with non assured people’s behaviour but a foreseeable vast penetration

Indian insurance industry has been the one with huge motivation by Government initiatives with schemes focusing on increasing penetration over coming few years but its also the one most influenced by people's habits and mindset on how much they consider insurance a useful protection cover or a mandatory financial allocation marked on their valuable purchases or priceless life.

Despite such behavioral challenges insurance industry has grown substantially in both life and non-life segments as discussed below.

The growth of Gross premiums written till FY 2018 is shown in this graph-

Graph for GWP in USD billion from 2012 to 2018 and reaching from USD 49 billion to USD 94.5 billion from 2012 to 2018.

Growth observed over past few years

Growth in Life insurance market

First year life insurance premiums in Crores from FY 2012 till Oct 2018.

(F.Y.19 period is till October 2018)
  • Life insurance in India has a huge growth potential & by 2020, it is expected to account for ~35% of India’s total savings.
  • Over 2012-2018, first year life insurance premiums have increased at a ~9.22% CAGR to reach Rs. 1.94 trillion .
  • In F.Y. 2019 (till October 2018), first year life insurance premiums increase ~2.41% year on year to Rs. 1.08 trillion.
  • Overall, life insurance has grown from Rs. 2.56 trillion in F.Y. 2012 to Rs. 4.58 trillion in F.Y. 2018.

Change in public-private distribution

There has been a tremendous shift in market share from public to private sector companies in life insurance industry bringing the share of private sector from ~2% in F.Y. 2003 to ~32.12% in F.Y. 2019. Currently Life Insurance Corporation of India (LIC) is the sole public sector company in life insurance business. It indicates much infusion of increasing competition and requirement of improved channels for public reach.

In the Insurance industry till FY 2003, Public sector players covered the 98% of the market and in Oct 2018, there private public ratio changed to 32.12:67.88

Growth in Non- Life insurance market

Year wise gross direct premiums underwritten from FY 2012 till Oct 2018

(F.Y.19 period is till October 2018)
  • Over 2012-2018, gross direct premiums underwritten have increased at a ~17.21% CAGR to reach Rs. 1.51 trillion.
  • Year on year growth in F.Y. 2019 till October 2018 has been ~11.72%
  • Number of non-life insurance policies issues have increased at CAGR of ~10.05% over F.Y. 2008 to 2017.

Change in public-private distribution

As happened in life insurance, there has been a great shift in public private distribution.

general public private

Lets have a look into the facets of the two segments

Life Insurance segment

Key Market Players

Share in first year life insurance premiums (April-Oct 2018)

LIC 68%, HDFC standard life 7%, SBI life 6% and ICICI Prudential 4% with other players having 15% share

  • LIC continues to be the market leader in the segment. LIC functions with 2048 fully computerised branch offices, 113 divisional offices, 8 zonal offices, 1381 satellite offices and the Corporate office which constitutes to be a wide network. Being 100% Govt. of India owned it operates in the unlisted space. LIC has huge fund under under its disposal and it is sought after lender of Government of India. Though there is a huge gap for private players to extend market share to such a level, but on the face of intense competitive market there is lesser scope for LIC's growth beyond a certain level.
  • Private sector has outpaced LIC over previous few years in terms of Individual WRP (total premiums collected through individual retail policies) growth-

Year growth % in individual retail policies' premium in private sector and LIC

  • Over this F.Y. 2018 till now HDFC Standard Life, SBI Life and ICICI Prudential Life have remained as the top three market holders. These have entered the listed space recently with ICICI Prudential Life getting listed in September 2016, followed by SBI Life in September 2017 and HDFC Standard Life in November 2017.

Growth factors for Life Insurance industry

a. Low penetration

Great opportunity exists in terms of number of life policies in India in comparison to the population. That ratio is quite low at ~2% as compared to ~80% in developed countries.

Also, the ratio of premium to Gross Domestic Product (GDP) in India is only ~2.7% as against a world median of 3.5%. Very low penetration of Insurance in India makes it an exciting high growth sector. Still in India people never consider it as an investment/protective cover but only fall for mandatory spaces.

b. Foreign investment

Long-term institutional investors like pension funds and other FIIs love the life insurance sector for the visibility it offers. They have benefitted  from their investments in this sector globally. This sector is the best player, especially for India’s demographics. And knowing the growth possibilities in the sector, they are likely to behold these stocks for a really long term. FIIs have long held the parents of these companies like ICICI Bank and SBI. But now that these insurance subsidiaries have been independently listed, they are taking a direct exposure to the desired extent.They are now playing the India story directly through these companies.

FDI in insurance sector is restricted to 49% till date. The Insurance Regulatory and Development Authority of India (IRDAI) is in the favour of allowing 100 per cent foreign direct investment in insurance intermediaries in addition to insurance brokers. The step is to strengthen the distribution network for the overall insurance industry.

c. Fintech revolution

As year 2018 was the year of IPOs, further few years will be surely into fintech revolution. With the regulator’s willingness to allow private equity and venture capital investments in the industry may bring about change in ownership in life insurance industry and first time entrepreneurs may enter the market.

Fintech start-ups working on the insurance domain are fast grabbing the attention of private equity and venture capital firms as innovative product offerings, digital experience coupled with lower insurance penetration level in India are supplementing their growth trend. This may trigger the entry of more ‘life insurance startups’ promoted by insurance professionals supported by PE and VC investors.

Actually customers no longer want  to visit government offices inquiring about new policy plans. They seek this information on the Internet. They have become accustomed to purchasing goods on e-commerce websites and expect a similar experience for buying insurance policies. Many of the established players in this sector have now begun investing money in technology and some are even incubating startups in house in anticipation of the disruption.

Technological innovations is taking over the conventional strategies of managements and they are willing to invest more on applications/platforms based on artificial intelligence and internet of things. Top players try and are being able to getting an upper edge over their peers with successful AI platforms handling queries, registering new policies, renewals and operational updations. This is a focus area in every management's outlook/management's future expansion plans.

Non-Life Insurance segment

General insurance includes the following categories:

Insurance category wise gross direct premium income underwritten by non life insurance players for the year 2019 uoto Oct 2018

  • Motor insurance accounted for the highest share in the segment with 37.29% followed by health insurance at 25.76% till Oct 2018 and motor insurance will see much progress going forward taking new rule of mandatory upfront 3 years TP insurance for cars and 5 years for 2 wheeler as applied by IRDA from September 1, 2018.

Key Market Players

Share in gross direct premiums collected (April-Oct 2018)

Share of players in gross direct premiums collected (April-Oct 2018)

  • Public sector insurers lead the non-life insurance market in India with New India Assurance, United India Insurance, National insurance Company & The Oriental Insurance Company Ltd. having market shares of 14.58%, 9.06% , 8.82% and 7.9% respectively.
  • ICICI Lombard General Insurance Co. Ltd. is the leading private player in listed space with overall 8.90% market share followed by Bajaj Allianz, 6.17% and HDFC Ergo, 5.20%.
  • The top players are constantly focusing on use of Artificial intelligence, collaborating with global level research organisations, use of IOT and other IT technologies for fast transactions processing, client support & queries, risk management , forecasting losses and securing the regions with higher possibility of good business to have a competitive edge.
  • Use of "Chat bots" is going to be quite progressive in motor, health and personal accidental insurance requiring minimal manual interaction for issuing/renewing policies and settling of claims.

Segment wise opportunities in general insurance

Motor insurance:

Over F.Y. 2009 to F.Y. 2018 GDPI in Motor own damage (OD) insurance has increased by ~13.67% CAGR and in Motor third party (TP) insurance growth has been CAGR ~23.12% . Till Oct 2018, growth in motor TP GDPI has been ~14.7% and in motor OD there has not been much variation. Motor insurance is the largest market with tremendous growth opportunities in the light of new regulations. The most recent being rule of mandatory upfront insurance for all 2 wheelers and cars effective September 01, 2018.

TP pricing is notified by IRDA thus insurance providers do not have much space in pricing strategies but the rule definitely welcomes huge business for the industry as a whole. On the other hand pricing strategies can be modeled for motor OD policies and sales can be increased on the combinations with long term TP policies as a whole lot of clients will get on board . This is a big opportunity for the industry as a whole and it is to see how the players pull off the benefits at OEM level or distributor level. The great impact is expected to be seen by end of F.Y 2019.

The Indian auto industry is also growing at a great pace and is expected to grow up to 4 times from current USD 74 billion market to reach USD 260-300 billion in next 7-8 years.

Health & Personal accidental insurance:

Over F.Y. 2009 to F.Y. 2018 GDPI in Health insurance has increased by ~21.38% CAGR and in Personal accidental insurance growth has been at CAGR ~18.16% . Till Oct 2018, growth in health insurance GDPI has been ~19.1% and in personal accidental the growth was ~26.6%. It shows quite a healthy growth of the segment and also it holds huge share in the industry.

The personal accidental insurance is a small portion of the overall industry but with recent mandatory motor TP insurance rule, PA insurance has also been made mandatory to be taken with TP insurance on every vehicle. The insurance cover has been raised from 1 lac to 15 lacs with no major change in pricing. It definitely shows a big market coverage at a rapid pace. Change in cover amount by 15x with no major impact on pricing is an attraction point for customers but on contrary it may impact the profitability as claim filing rate which was earlier quite low in the segment may increase multiple times but it would still be better to count on the increasing benefits with new development.

The growth in health insurance has been observed only since last 10 years and still is underserved due to lack of awareness and affordability among most of the regions of the country resulting that only ~10% of the population have private health insurance as compared to the developed countries where ~95-98% of the population have private insurance.

It is expected that by 2022 standalone health insurance market will grow to Rs. 21,000 cr. from current size of around Rs. 5,800 cr. It is quite a competitive market for standalone health insurance players as large general insurance players cover a huge portion of the market.

Some of the growth factors for this segment are:

  1. Increasing medical costs
  2. Technological updations on platform based systems
  3. Selling strategies by the companies to make the insurance more attractive to people at a young age.
  4. OPD coverage, not much is included in covers till day
  5. Required more disease specific insurance covers

Crop insurance insurance:

Though the market portion is quite small but the segment is a great growth booster for major players. The Govt. of India has played great role for its growth from last 2 years with many subsidized schemes to benefit both insurers and customers. The subscriptions under Pradhan Mantri Fasal Bima Yojna and National Crop Insurance Programme have been outstanding within months of their launch. Though the loss ratio did see quite an uptrend over few quarters till now but the Centre plans to increase coverage of PMFBY to 50% of crop area in F.Y.19, insurers are of the view that this will spread the risks across a wider base and will help bring down losses further over next periods

Travel insurance:

Currently the travel insurance market is much less than ~1% of the total insurance industry. It is expected to grow at a healthy rate of ~10-15% annually going forward due to growth of travel sector.

  • There has been tremendous increase in not only insurance opting on international travels but also on most of the domestic travels.
  • Rise of online travel booking platforms which take up a lot of insurance business are growing at a rapid pace with technological improvements. Travel bookings are becoming so swift and easy due to such platforms that hardly offer any thinking time to people before booking a trip. And this will act the key driver for travel insurance market which has untapped penetration of around 17% in India. The cab aggregators for local travels are also huge participants and there is no way downfall in such platforms in future but only multi fold growth can be expected.


The insurance industry in its each segment engulfs huge growth prospects that will surely be tapped by players. It will be interesting to have a regular update with this industry more often.

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The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. The report & references mentioned are only for information of the readers about the industry stated.

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