Optima Insurance Brokers Pvt. Ltd.

The Indian insurance market has witnessed an impressive growth rate in the last two decades primarily driven by the bigger private sector participation and hugely improved distribution capabilities, along with marked improvements in operational efficiencies.

The insurance industry of India has 57 insurance companies; 24 being in the life insurance business, while 34 are General Insurers. It has undergone and triumphed over multiple challenges and changes before becoming one of the fastest-growing markets.

Due to strong demand for health and motor policies, the first quarter of FY24 witnessed non-life insurance premium income increasing by 17.9% year-over-year to Rs. 64,262 crore (USD 7.72 billion)

The premium in March 2023 for the private life insurance industry grew at a good pace of 35% on a year-on-year basis and 20% for FY23.

As per IRDAI data, Life insurance firms collected 18% more premiums in FY23 as compared to the year before. Life insurers collected Rs. 3.71 lakh crore (USD 44.85 billion) as the first-year premium in FY23 as against Rs 3.14 lakh crore (USD 37.96 billion) in FY22.

The Insurance Regulatory and Development Authority of India (IRDAI), estimates that the Indian insurance industry is projected to reach USD 222 billion by 2026 to become the 6^th largest insurance market globally, overtaking countries like Germany, Canada, Italy, and South Korea.

The business factors contributing to the growth of the Insurance market in India are:

1. Favourable Demographics
2. Wide middle-class expansion
3. Technological Advancement
4. Emergence of Point of Salespersons
5. Increased Distribution of Rural Insurance
6. Key Technologies: Artificial Intelligence, Internet of Things, Machine Learning, Application Programming Interface

As per research by Swiss Re, in the coming 5 years, India is forecasted to have the fastest-growing insurance sector of all G20 countries. The Indian economy grew at an estimated 6.7% growth in 2023 outpacing all other major economies supported by private consumption and fixed investment.

The insurance market in India is estimated to have a positive outlook on the basis of economic growth, an expanding middle class, innovation, and regulatory support. Over the next 5 years (2024‒28), it is forecasted that total insurance premiums will grow by 7.1% in real terms, way ahead of the global (2.4%), emerging (5.1%) and advanced (1.7%) market averages. Propelling India to be the fastest-growing insurance sector of the G20 countries.

Supported by rising demand for term life cover by the middle-class and the young population of India, and with rising adoption of Insurtech, the life business will experience robust growth (premiums up 6.7% in 2024‒28).

Driven by economic growth, improvement in distribution channels, government support, and a favourable regulatory environment, the Non-life premiums are forecasted to rise by an annual average of 8.3% during 2024‒28.

National Insurance Academy (NIA) has proposed to make natural catastrophe (NatCat) cover compulsory in highly vulnerable and disaster-prone areas, with a view to reducing the impact of any natural calamities in the future and building resilience.

The proposed NatCat cover must cater to region-specific needs considering climate change, urbanization, and hazard risk vulnerability, by developing a single peril customized NatCat peril insurance.

This is going to be a huge collaborative effort involving government, insurers, reinsurers, brokers, and intermediaries as per NIA’s report on ‘Enhancing Insurance Inclusivity and Bridging the Protection Gap in India.’

The proposed solution mandates that commercial organizations allocate a certain percentage of revenue every year towards climate change or DRR (disaster risk reduction), exploring the possibility of ‘CAT bonds’ for additional funding capacity. It also mooted compulsory crop insurance for loanee farmers, supported by financing from microfinance institutions and Agri-input suppliers, implementation of parametric-based insurance, and embedded insurance solutions for scaling up property insurance in India.

As per 2022 Swiss Re data, India currently faces a 95% NatCat protection gap, and it is likely to increase with rising climate risk exposures, infrastructure development, and rural-to-urban migration. As per Munich Re, 91% of NatCat losses are triggered by weather-related perils, increasing volatility and complexities in reinsurance.

It is suggested to focus on lower-income and less-educated segments for better insurance awareness and leveraging technology and analytics, through collaborations with insuretech, for personalized services and customized home insurance with NatCat risk protection and value additions like home security, maintenance, and repair services.

Insurers can offer coverage against these disasters and cross-sell/up-sell to existing customers for revenue growth and loyalty improvement, and to address emerging risks by developing climate and cyber insurance as top-up covers under standard fire insurance or property insurance for both individuals and corporations.

Adding that claims services can be enhanced through satellite-based hazard risk and loss assessment using remote sensing and geospatial technologies.

Marine cargo insurance policies are vital for the businesses involved in the transportation of goods, in particular shipping across the Israel-Gaza region. War damage coverage has the potential to increase the reinsurance rates which is causing jitters amongst the Indian Insurers amidst the ongoing military conflict in a region of the world that has immense trade value and importance.

HDFC Ergo and other Insurance companies in India have strategically opted to cancel the coverage for damages as a result of sabotage, strikes, riots, lockouts, and vandalism in Israel/ Gaza/ Lebanon because of the ongoing war. This will help reduce the risks associated with war-related actions.

The prime reason for such a move is the mounting concern on account of the rising reinsurance costs associated with such conflicts. This will help Insurance companies in India to keep claims in check and mitigate its potential impact on reinsurance premiums and rising costs.

A Deloitte report has forecasted that the Indian cyber insurance market will grow by 27-30% in the coming years. The current market valuation stands at $50-60 million, maintaining a steady compound annual growth rate (CAGR) of 27-30% over the past three years.

This growth is primarily led by increased awareness of cyber insurance needs. Industries focussing heavily on digitization like IT, pharma, and manufacturing, and prime movers of economic growth like supply chain, retail, critical industries, and finance, are expected to be the prime targets of cybercriminals, being early adopters.

As per the report, willingness was most prominent among mid-sized firms. Surprisingly, leading companies in the consumer sector taking care of substantial consumer databases sounded a cautious approach to expanding their digital infrastructure budget but with an earnest desire to boost their insurance coverage.

One major finding of the survey was that about three-fourths of respondents possessed cyber insurance coverage of Rs 100 crore or less, with over 50% having less than Rs 10 crore of coverage.

India’s surety insurance bond market has not yet taken off due to unaddressed risks and the absence of market makers, despite its potential being huge.

As per research, the estimated maximum possible supply of bank guarantees over the next 5 years would be about INR35tn ($421bn) whereas Infrastructure projects would need guarantees totaling INR95tn over the period. This represents a huge shortfall of INR60tn ($722bn).

This gap in guarantee provides Surety insurance as an alternative allowing stakeholders to tap surety bonds to meet demand. India is expected to spend about INR100tn ($1.2tn) on infrastructure through the National Infrastructure Pipeline in the next 5 years, obligating the need for bank guarantees of about INR90tn in the same period, which is beyond the capacity of Indian banks.

This situation presents a unique opportunity for the general insurance industry to diversify its portfolio and play a critical role in nation-building. In Budget 2022–23, surety insurance was allowed as a substitute for bank guarantees in government procurement and gold imports.

Emerging Asia is likely to be the engine of growth for the world economy in the coming years. With the China’s economy reopening again this year, Emerging Asia to grow by 5.4% in 2023/24 due to recovery in demand. However, inflation still remains the biggest global macroeconomic concern, inducing hard market conditions in non-life business prompting insurers to offset elevated claims costs with higher premium prices.

As per an estimate, global economic growth will be lower at 2.3% this year and 2.3% in 2024. This growth is majorly contributed by emerging Asian markets, wherein countries like India, Thailand, Indonesia and Malaysia are likely to grow much higher. With China coming out of the lockdowns in December last year, it is forecasted to register stronger growth this year than in 2022, pegged at 5.4%.

Insurance industry’s profitability in the world is set to improve with global insurance premiums, both in non-life and life, are estimated to grow by 1.1% in 2023 and by 1.7% in 2024. The premium amounts are forecasted to touch a new peak of $7.1 Tn in 2023, as compared to $6.8 Tn in 2022.

The Non-life premiums in emerging Asia are estimated to expand by 6.7% and 6.2% over 2023 and 2024, whereas life premiums are set to grow by 5.0% and 5.4%.

This year Non-life business is likely to be supported by better pricing, with Non-life premiums for China and emerging Asia forecasted to grow by 6.8% and 6.6% respectively.

IRDAI has advised all insurance companies to promptly inform cyber security related incidents, as it came to know that many insurers were not adhering to the timelines and compliance in reporting such communication with Cert-In, vide a circular dated June 13, 2023.

Insurers are required to report cyber incidents to Cert-In (Indian Computer Emergency Response Team) within 6 hours of noticing or being notified about cyber-attacks, with a copy to IRDAI and other designated regulators and authorities.

Insurers must refer and follow the IRDAI Information and Cyber Security Guidelines for reporting purposes and submit necessary details in a prescribed format within 24 hours, to be updated with forensic analysis and any new information.

This will enhance cyber security and develop a secure environment for the policyholders and insurance sector, by prompting a swift response to prevent further damage and mitigate risks. Any failure to do so could invite penalties or regulatory consequences for the insurers.

Indian domestic insurance market is set to witness IRDAI’s path breaking regulatory reform with the regulator considering the feasibility of allowing managed general agencies or MGAs into the insurance market.

At present, MGAs do not operate in India, but IRDAI is considering their participation favorably in continuation of discussions being held with large insurance intermediaries. This positive step would allow current insurance intermediaries like Policybazaar, and others, who are focused only on distribution, to play a bigger role in the design of insurance products and life cycle management of the customer.

The entry of MGAs will open up opportunities for new-generation tech companies in partnership with large insurance companies for risk-sharing, underwriting business, wider use of technology, and offering customized insurance products in areas where the insurers does not have presence.