Optima Insurance Brokers Pvt. Ltd.

Subdued new premium growth due to poor auto sales and the lack of new projects have dented the general insurance industry’s business expansion in the financial year ended 31 March 2015 to a three-year low of 9.3% to INR847.15 billion (US$13.49 billion), according to provisional data from the General Insurance Council.

In comparison, the non-life industry had grown by 13% in FY2013/14 to INR775.4 billion, reported the Press Trust of India. The single-digit growth for the industry was due to a slump in auto business and the non-execution of infrastructure projects during the year, said General Insurance Council Secretary General, Mr R Chandrasekaran. The provisional figures compiled by the Council showed that the business of the four public-sector general insurers are likely to have grown by 10.1% to INR425.15 billion for FY2014/15. The four companies are: New India Assurance, National Insurance, Oriental Insurance Company and United India Insurance.

The 24 private-sector players had a combined premium collection of INR351.5 billion for the year, representing an increase of 9.9% over FY2013/14. The health insurance sector, dominated by half a dozen players, is likely to have grown by 30% to INR29.46 billion for FY2014/15. But if specialised areas like agriculture and Export Credit Guarantee Corporation were excluded, the non-life industry was likely to have grown by 10.6% for FY2014/15.

New India Assurance, the country’s biggest non-life insurer in terms of gross premiums, is hopeful of faster growth in the current financial year which started on 1 April. “The industry has bottomed out. I do see an annual growth in the range of 14-15% in the current fiscal year and the growth drivers are likely to be mandatory third-party motor premiums due to revised rates, and expected higher premiums in property and fire lines,” Mr G Srinivasan, the company’s Chairman and Managing Director, said.

Regulations covering corporate agents proposed by the insurance regulator that would require a bank to sell the insurance policies of up to three life insurers, three non-life insurers and three health insurers, will have far reaching implications on the valuations of domestic insurance companies at a time when foreign investors are looking at increasing their stake in them

In valuing an insurance company, a key part of the value of future new business premium relates to the value of business that can be sold through banks and other corporate agents driven by future volumes and margins, both of which could be impacted by the proposed changes, reported the Financial Chronicle. The Insurance Regulatory and Development Authority of India (IRDAI) has issued draft regulations covering corporate agents including banks. Most banks such as State Bank of India, ICICI Bank, Bank of Baroda, Bank of India, Union Bank, Andhra Bank, Allahabad Bank, Canara Bank, and HSBC Bank have established their own life or general insurance company, or both. They exclusively sell policies of their insurance subsidiaries.

The draft regulations for corporate agents state that a corporate agent “shall have arrangements with a maximum of three life/general/health insurers as the case may be to distribute their products. The corporate agent is not allowed to place more than 90% of the business it procures with any one insurer (in each of the categories-life/general/health as applicable in the first year. This limit is lowered to 75%, 60% and 50% in the second, third and fourth year onwards respectively”. Mr Karni Singh Arha, Chief Financial Officer of India First Life Insurance, told Financial Chronicle: “An open architecture model impacts the future business of an insurance company.

At present, health and motor insurance are driving the non-life market, said the executive.

“Valuation is dependant on future business which is dependant on the distribution point of sale. So if the distribution point of sale decreases or increases, it will impact valuations accordingly,” explained Mr Singh. Mr Sanket Kawatkar, principal and consulting actuary at the actuarial and consulting firm, Milliman, said: “Valuations will depend on whether an insurance company ends up gaining additional business through banks or losing business through banks.” Currently, all bancassurance arrangements are exclusive, that is, the bank as corporate agent is allowed to distribute the products of one life insurer, one non-life insurer and one standalone health insurance company.

The Insurance Regulatory and Development Authority of India (IRDAI) is reviewing health insurance guidelines, following the amendment last month of the insurance law that recognises health insurance as distinct from life and general insurance, reported The Economic Times. The modified regulations are expected to be released by the end of this month.

Single-premium and long-term health plans will allow policyholders to lock into the premiums for a longer tenure at a time when medical inflation is rising every year. It is proposed that long-term health policies could carry a tenure of 3-5 years. At the same time, for insurers, this would ensure loyalty of customers over a long period of time. The proposal for health savings accounts will create a fund over 5-15 years to finance the healthcare expenses of the insured during their post-retirement years. .

The IRDAI feels the need to revisit various areas of the health insurance framework such as products, distribution, actuarial related matters like pricing, claims experience, solvency, M&A, rural and social obligations, and others, so that processes are streamlined to cater to the growing demands of the market for health insurance and also to enable companies to gear up to meet such demand in terms of innovation and servicing capabilities, said Mr Ajay Bimbhet, Managing Director of Royal Sundaram Alliance Insurance.

Energy major ONGC has driven a hard bargain to renew its re/insurance cover, at around USD 20 million — a record discount of 40 per cent — for its offshore assets valued at USD 34 billion from the London reinsurance market.

While the state-run United India Insurance continues to be the lead primary insurer, two global rensurers- Endurance and Aspen — have outbid India’s sole reinsurer GIC Re to be the lead reinsurer for the deal. . The insurance cover, due for renewal on May 11, is currently getting placed in the the London markets, sources in the London market said. “ONGC has renewed its insurance account for its offshore assets worth USD 34 billion for a premium of around USD 20 million, more than 35 per cent lower than what it had paid for existing cover of USD 33 million,” said industry sources. .

ONGC, which holds the biggest insurance policy in the country at USD 33 million, had earlier floated a tender where global underwriters had competed with each other to be the reinsurer of the company. The Chennai-based United India Insurance along with other public sector non-life insurers has been covering the oil and gas major for the past three years, Global reinsurance prices have been heading south as there has been a glut of capital and claims have been lower in recent years. The capital in the global reinsurance market grew to USD 575 billion including USD 64 billion deployed in alternative capacity (capital from pension funds and hedge funds)—both records in 2014. .

Air India paid USD 27 million for its cover in the outgoing fiscal, making it the second biggest account. The cover for large corporates like Reliance Industries, Jet Airways among others are about to be renewed and they may get benefit of the softening general insurance market. However, airlines may be forced to shell out more following the last week’s Germanwings airline crash.

The Indian insurance regulator has proposed that no insurer can refuse to underwrite third party insurance.

The insurance Bill was approved by the upper house of Parliament or the Rajya Sabha last night, after a heated debate and a walkout by some opposition lawmakers. The Congress Party and some other opposition parties backed Mr Modi’s National Democratic Alliance in voting for the Bill which was passed by the lower house or the Lok Sabha on 4 March. The Bill, which had been pending since 2008, needed to be approved by both houses. It will be signed into law by President Pranab Mukherjee. .

The exposure draft said that every insurer during a financial year should underwrite a minimum percentage of 90% of the overall motor third-party insurance premium of the industry for the immediate preceding financial year, reported The Hindu newspaper. “The minimum percentage so decided should be equal to the simple average of the insurer’s share in total gross premium of the industry and in total motor insurance premium of the industry, both in the immediate preceding financial year,” the draft said. Insurers are expected to submit their response to the exposure draft by 25 March. .

Crackdown on insurance evasion .

Meanwhile, the Indian authorities plan to crack down on evasion of mandatory motor third-party insurance. “Our study showed that about 55% of all registered vehicles in the country have no insurance. We are rolling out an automatic detection system in association with the police and road transport authorities in different states shortly,’’ Mr R Raghavan, Chief Executive Officer of Insurance Information Bureau of India (IIB), said. .

There are about 125 million vehicles in the country. While all vehicle owners will automatically buy vehicle insurance when they register their vehicles, only 45 % them renew their policies after a year, he said. The crackdown could lead to motor third-party insurance premiums rising by INR70 billion (US$1.12 billion) a year. “This will definitely bring down existing vehicle insurance premiums significantly due to economies of scale,’’ Mr Raghavan added.

India’s Parliament has voted to increase the foreign investment limit in the insurance industry to 49% from 26%, in a long-awaited historic move which is the first major legislative victory for Prime Minister Narendra Modi as he seeks to reform the Indian economy.

The insurance Bill was approved by the upper house of Parliament or the Rajya Sabha last night, after a heated debate and a walkout by some opposition lawmakers. The Congress Party and some other opposition parties backed Mr Modi’s National Democratic Alliance in voting for the Bill which was passed by the lower house or the Lok Sabha on 4 March. The Bill, which had been pending since 2008, needed to be approved by both houses. It will be signed into law by President Pranab Mukherjee. .

The new insurance law will liberalise the Indian insurance industry. About INR200 billion (US$3.2 billion) of investment is likely to be attracted into the sector over the next few years, KPMG India Partner, Mr Shashwat Sharma, said. Several foreign investors with a stake already in Indian insurers are set to increase their investments while new overseas investors would seek to enter the market. In a reaction, Mr Ajay Bimbhet, Managing Director of Royal Sundaram Alliance Insurance, said: “This passing of insurance bill is a historic move for the Indian insurance industry. Universal health being one of the primary motives of the new government, we can expect a sizeable FDI inflow into the Indian insurance industry. The investments would be channeled towards product innovations and to increase market penetration. With better economic conditions now, we can expect a double-digit growth for the entire industry. We remain optimistic on the development.” .

Mr Sandeep Patel, Managing Director and CEO of Cigna TTK Health Insurance, said that the new law represents “a paradigm shift moment for the Indian insurance sector“. He said that the legislation will further support the development and enhancement of the health insurance industry with an infusion of capital and its ability to operate as a separate line of business. The investments and separate business classification will promote customer-centric product and service innovations, help in improving technology and deepen market penetration besides improving distribution efficiencies. Just prior to the vote in the Rajya Sabha, news emerged that ICICI Bank, India’s largest private-sector lender, is in talks to sell part of its stake in the country’s biggest private-sector life insurer to the Singapore government’s investment company, Temasek Holdings, and European asset management company, Carmignac Gestion, for about US$300 million, according to a Bloomberg report. .

The bank plans to complete an agreement to sell about 5% of ICICI Prudential Life Insurance by the end of this month, the report said, citing unnamed sources. ICICI owns 74% of the life insurance joint venture, with the remaining 26% held by UK insurer Prudential. In addition, among the long list of foreign partners interested in raising their current holdings in Indian insurance ventures are Germany’s ERGO Insurance, Britain’s Standard Life, Japan’s Mitsui Sumitomo of Japan and UK-based health group Bupa. .

The economic output at risk of flooding in India, the world’s second most populous nation, may surge 10-fold by 2030 as cities expand and climate challenges worsen, according to the US-based World Resources Institute.

A new online global flood-analyzing tool developed by WRI and four Dutch research agencies estimates that India’s current GDP exposed annually could increase 10-fold from US$14 billion to US$154 billion by 2030, reported Bloomberg. India also faces more potential change in exposed GDP than any country. China is next at US$98 billion. India tops the list of 163 countries studied that have populations affected by river flooding. The other four countries in the top five are also in Asia; namely, Bangladesh in second place, then China, followed by Vietnam, Pakistan and Indonesia, the tool showed. .

The cost and loss from floods played out last September when India deployed 300,000 military personnel in the Himalayan state of Jammu and Kashmir to rescue 130,000 people after a week of rain caused riverbanks to burst, killing about 500 in India and Pakistan. In 2013, the worst flash floods in 90 years killed 580 and left 5,000 more missing in the northern states of Himachal Pradesh and Uttarakhand. .

River flooding currently impacts 21 million people worldwide on average and costs US$96 billion in GDP each year, according to the analysis. In 15 years, those numbers may grow to 54 million people and US$521 billion in GDP affected annually.

The Insurance Regulatory and Development Authority of India (RDAI) also said that the insurance servicing activities of the insurance marketing firms will include undertaking back-office activities of insurers as allowed in the guidelines on outsourcing activities by insurance companies, and becoming approved persons of insurance repositories, reported the Business Standard. They can also undertake survey and loss assessment work by employing licensed surveyors & loss assessors. .

Under these rules, insurance marketing firms can market and service insurance through insurance sales persons, apart from marketing other financial products through financial service executives. These include products of mutual fund companies; pension products of the Pension Fund Regulatory and Development Authority; other financial products distributed by the Securities and Exchange Board of India and licensed investment advisors; and banking/ financial products of banks/ non-banking financial companies regulated by the Reserve Bank of India. .

In general insurance, insurance marketing firms can deal with only retail insurance products including motor, health, travel and other similar policies. An insurance marketing firm should have a minimum net worth of INR1 million (US$16,140) . It has to designate a principal officer who shall be the overall in-charge and shall be responsible for regulatory compliance. The licence given to such a firm is renewable every three years.

India’s insurance sector is expected to quadruple to about US$250 billion over the next decade from around US$60 billion at present, according to a study by the Confederation of Indian Industry (CII) prepared in partnership with consultancy firm McKinsey & Co. The report said that the Indian insurance industry is currently the 16th largest market in the world and is expected to be one of the top 10 markets by 2025. .

The study, “India Insurance Vision 2025” recommends an inclusive and progressive growth strategy for the industry . Such a strategy would enable the Indian life insurance industry to achieve 12% compounded annual growth rate (CAGR) to reach US$160 billion and the non-life insurance industry to see 22% CAGR to US$80 billion over the next 10 years, the report said. .

“The last few years have been challenging for the industry with declining growth in life insurance premiums and significant challenges in non-life profitability. This was driven by a combination of macroeconomic factors and structural challenges inherent in the insurance industry. “However, an improving economy with potential regulatory reforms and concerted action by industry players can usher in an era of significant growth as well as value creation,” the report added. .

Mr Analjit Singh, head of the CII national committee on insurance and pensions and Chairman of Max India, said that the industry has the potential to grow three to five times in size over the next decade. “For this to happen, policy action by the regulator, collaboration between players, and the individual player’s push to develop distribution and technical capabilities, would be critical,” he said.

The central government is planning to set a limit on the liability arising from road accidents in a move that will come as a relief to insurers which are facing heavy losses from third-party motor insurance. .

The government mooted the idea in the draft Road Transport Safety Bill released last year, where it mentioned the need to set the maximum liability limit in consultation with the insurance regulator. It also proposes that vehicle owners buy additional insurance to protect themselves from liability. Under the current system, there is no ceiling on payouts that insurers have to make in motor liability cases. The compensation amount is decided by the courts. In the case of road accidents, compensation as high as INR500 million (US$8 million) has been awarded, depending on parameters such as the income and the future earnings potential of the victim. .

“Having a maximum liability limit in third party motor insurance will help moderate premium increases,” Mr Vijay Kumar, Chief Technical Officer (Motor Insurance) at Bajaj Allianz General Insurance, told Hindu Business Line. He pointed out that while the value of claims rose by about 25% every year, the increase in premiums fixed by the regulator rose only by about 10%. .

A ceiling on motor liability compensation would help reduce costs for insurance and can lead to lower insurance premiums. This in turn will help address the issue of the large number of uninsured vehicles, said Mr Mukesh Kumar, Executive Director, HDFC ERGO General Insurance.

Insurers are seeking a 40% increase in third party motor insurance premiums this year as they have been reeling under a claims ratio of around 120% and estimated losses of INR120 billion. Third-party motor insurance coverage is mandatory by law and the premium is decided by the Insurance Regulatory and Development Authority of India