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The Indian government is reportedly planning to form a single mega entity by consolidating all four state-run insurers-Oriental, National, United India and New India.

The government of India feels that if Oriental, National and United were to be merged into one entity, the merged entity would compete against New India and the two sides could undercut one another. Hence, the government is studying merging the first three insurers and then getting New India, which is a listed company, to acquire the merged entity.

The proposed single state controlled non-life insurer would be an insurance giant on the lines of LIC, but operating in the general insurance space. As per the latest IRDAI data, New India had a market share of 16.8% in terms of gross direct premium at the end of May. The combined share of the other three state-run insurers was about 25%.

The government also is likely to announce an injection of INR40bn ($573m) in the three unlisted public sector general insurance companies to shore up their capital.

India’s non-life insurance market is marked by continued reliance on realised and unrealised investments gains to offset technical losses, potential short-term disruption from regulatory enhancements and persistently competitive and underperforming core business lines of motor and agriculture, notes international rating agency AM Best. In its Best’s Market Segment Report, titled “Market Segment Outlook: India Non-Life Insurance”, the rating agency says that it is maintaining a negative market segment outlook.

The market’s combined ratios has fluctuated between 110 and 125 over the past five years, and most insurers have become dependent on investment income to generate profitability. The sustainability of such earnings may put the long term viability of many insurers into question.

India’s non-life insurers have been one of the main beneficiaries of the country’s fast growing economy, and the industry has seen a substantial increase in insurable risks. However, heavy competition and cumbersome regulatory hurdles for product development hinder technical performance, with most companies relying on strong investment income derived from the exceptional performance of Indian equities, which have shown sustained outperformance relative to global indices.

Despite the negative outlook, AM Best recognises that some non-life insurers still may experience growth. The international rating agency says that profitability and capital strength of companies that demonstrate sound risk management practices and disciplined underwriting likely are to improve steadily.

While proposing the revision in the third-party insurance premium rates, the regulator has also introduced some welcome features in the new exposure draft.

New rates to be around 15% higher

IRDAI has proposed an increase in excess of 14% for private cars, 21.11% for two-wheelers and around 11% for transport vehicles. For luxury cars and super bikes however, there is no change proposed in the third-party insurance premium.

The third-party insurance premium rates will be in two categories – category I – for older vehicles which have a registration date earlier than September 1, 2018 and category II – for new vehicles with a registration date falling on 1 September 2018 or later.

To promote environment friendly vehicles, electric vehicles will get 15% discount

School buses fall in a new separate category

The increase recommended for school buses is 5.29% for the basic rate and 5.34% per licensed passenger in the draft proposal. IRDAI has said that school buses are those which are registered in the name of a school and used only for the purpose of transporting students to or from a school or on school related trips.

Insurers are preparing to manage claims arising from an extremely powerful cyclone which battered the eastern Indian state of Odisha on 3 May causing extensive damage to property, vehicles, crops and the loss of at least 56 lives. Several news report have also labelled cyclone Fani as the worst storm in four decades affecting eastern India and neighbouring Bangladesh. Fani is the equivalent of a strong Category 3 storm on the Saffir-Simpson Scale.

A large number of claims are expected for the damage of property, vehicles and hospitalisation while few claims will be for damage to crops. There is also likely to be fewer life insurance claims as the state’s improved disaster-management efforts limited the number of casualties.

However, several insurers note that underinsurance is a major challenge. According to research from Lloyd’s India was found to have an insurance penetration rate of less than 1% with the absolute cost of the insurance gap standing at $27bn.

The Insurance Regulatory and Development Authority of India is expected to issue advisories for claims processing in the cyclone-affected areas. There are no official figures regarding total insured losses arising from cyclone Fani yet.

Public sector general insurance companies are losing market share, in terms of premium income, to their counterparts in the privately held sector.

Data released by the General Insurance Council show that the four public sector insurers — New India Assurance, United India Insurance, National Insurance and Oriental Insurance — had a market share of 42.5% for the fiscal year ended 31 March 2019 (FY2019), as compared to almost 48% for FY2018.

In FY2019, government run general insurers posted premium collection of INR687.2bn ($9.9bn), a 1.37% increase over FY2018. Privately held insurers (excluding standalone health insurers) generated total premium of INR816m in FY2019, an increase of almost 25% over FY2018.

Industry sources attribute the loss in market share to the government’s proposal to merge United India Insurance, National Insurance and Oriental Insurance and solvency issues.

IRDAI, the insurance regulator in India, has asked all non-life insurers to offer a standard health insurance product so that customers can have access to a basic health cover. This standard product shall have the basic mandatory covers, which shall be uniform across the market. No additional add-ons or optional covers are allowed to be proposed to offer, along with the standard product.

The regulator has let non-life insurers determine the price of the product. While the coverage will be the same the pricing will vary as all the insurance companies will be pricing it on experience. The IRDAI has also asked non-life insurers to devise their pricing for the standard health product in a way that it incentivises the early entry of young prospective policyholders of the health insurance market, and that would encourage young people to renew their cover and have a favourable claim experience, where applicable.

The sum insured for the product will be in the range of INR 50,000 ($702) to INR 1 million (USD 15,000). The product will cover hospitalisation expenses, which include room, doctor, intensive care unit charges, medicine and drug costs. In addition, post hospitalisation expenses for a period of up to 60 days from the discharge from hospital will be covered. This would include consultant fees, diagnostic charges, medicine and drugs wherever required. The minimum 24-hour hospitalisation rule will not apply when medical treatment does not require hospitalisation. The product would have a lifelong renewability option for those in the age group of 18 and 65. The regulator has also decided to include wellness activities in the standard product to promote and maintain a wellness regime. The product will be available across various channels, including micro insurance agents and common service centres.

Microsoft co-founder Bill Gates has congratulated the Indian government for the successful completion of the first 100 days of the healthcare scheme Ayushman Bharat from its launch. The response from Gates came after Union Health Minister JP Nadda wrote on Twitter that 6,85,000 beneficiaries have availed free health care in just first 100 days of the scheme and the number is rising rapidly.

World Health Organization (WHO) director general Tedros Adhanom Ghebreyesus on 3 January had praised Prime Minister Modi and the health minister for leadership which helped around seven lakh people avail themselves of benefits of the healthcare scheme.

The scheme, which was launched by Prime Minister Narendra Modi from Ranchi in Jharkhand on 23 September, aims to provide healthcare cover of Rs five lakh per family annually to more than 10.74 crore poor families or 50 crore people for secondary and tertiary care hospitalisation, through a network of empanelled health care providers. The world’s largest ambitious healthcare scheme, it claims to cover medical and hospitalisation expenses for almost all secondary care and most tertiary care procedures. It has defined 1,350 medical packages covering surgery, medical and daycare treatments including medicines, diagnostics and transport.

Insurance is rapidly evolving and hence there is constant endeavour from IRDAI and insurance companies to upgrade the products, processes and technology.

Some of such trends expected in 2019 are as below:

Digitised insurance policies – IRDAI may make it mandatory for insurers to offer insurance policies only in a digital format. Currently, the number of digital insurance policies is very low.

Mental health insurance products – The Mental Healthcare Act took effect in July 2018, making insurance for those with mental ailments mandatory by law. However, due to a lack of clarity on the product structure, insurers have stayed away from offering the products. This year insurers could bring out products with a series of inclusions and exclusions.

Sandbox –  Another change is that IRDAI will allow companies to test products in a particular area, or among a set of policyholders, before they are made available in the market. IRDAI chairman Subhash Khuntia said that if the products tested in the sandbox are successful, such products can be filed for approval. Thus, insurers may begin testing products within a close group of customers to get their views and to ascertain the commercial viability of the products.

New capital rules – IRDAI is expected to release a detailed timeline on how risk-based capital will be implemented and the processes to be followed by insurers in pricing each risk. Under this system, insurers will have to maintain capital depending on the type of business that they write.

Technology-Linked Products – This year is expected to see more technology-linked products introduced in the Indian insurance sector. Among the expected trends this year is the use of wearables in insurance. An IRDAI committee has recommended that insurance companies make use of activity data monitored by fitness trackers in pricing their products. Insurance companies may soon require the customer to have a fitness tracker to capture their health status in an accurate manner.

The insurance regulator has indicated that it would stop setting tariffs for compulsory motor third party liability (MTPL) insurance with effect from the fiscal year starting 1 April 2020.

MTPL is the only business line for which the IRDAI currently sets tariffs. IRDAI’s decision would pave the way for insurance companies to set all their own pricing and the rates could fall because of stiff competition.

As per the officials, stopping the fixing of MTPL tariffs came up for discussion last week when the Prime Minister’s Office held a meeting to discuss the demands of truckers who called on the government to roll back a steep increase of nearly 28% in their premium in the current fiscal year. Mr Piyush Goyal, who acted as finance minister from 14 May to 22 August, had assured truckers’ organisations that the premium hike would be lowered to 15%, but action is still pending on this.

Finance Minister Arun Jaitley said on Tuesday, as many as 3 lakh poor people have benefited from Ayushman Bharat health scheme in the last one-and-a-half months.

Prime Minister Narendra Modi in September launched the Ayushman Bharat Pradhan Mantri Jan Aarogya Yojana which aims to provide coverage of Rs 5 lakh per family annually, benefiting more than 10.74 crore poor families for secondary and tertiary care hospitalisation through a network of empanelled health care providers.

Around 66 per cent of the total beneficiaries have availed treatment in private hospitals under the Ayushman Bharat scheme with a majority of them being recorded in Gujarat, Tamil Nadu, Chattishgarh, West Bengal and Madhya Pradesh respectively, an official said.

Dinesh Arora, deputy chief executive of the National Health Agency (NHA), the apex body implementing the scheme, said till November 26, of the total 3,65,394 beneficiaries who were admitted to hospitals for undergoing various surgeries and procedures, 204,000 have been treated in private hospitals.

Over 10,000 hospitals have been empanelled for the scheme, and 33 states and Union Territories have signed memorandums of understanding (MoUs) with the Centre for implementing the programme.