Optima Insurance Brokers Pvt. Ltd.

The state of Maharashtra, of which Mumbai is the capital, has topped the list of regional markets in India in terms of non-life premiums, while New Delhi ranked Number One in non-life insurance density and insurance penetration, for the financial year ended 31 March 2014.

The top five general insurance markets in terms of gross premiums are Maharashtra, Tamil Nadu, Gujarat, Karnataka and New Delhi, reported Press Trust of India citing data from the General Insurance Council (GIC). Maharashtra, with around 1,100 offices set up by the general insurers, generated a total premium of INR177.74 billion (US$2.8 billion) in FY2013-14. The state’s per capita premium was pegged at INR1,600 while insurance penetration was 1.13% during the year.

Tamil Nadu, the second largest general insurance market with around 1,200 offices, has the largest number of general insurance offices in the country. The state generated premiums of INR75.38 billion and had an insurance penetration of 0.90% and density of INR1,050 in 2013-14. New Delhi, with 315 insurance offices, collected total premium of around INR50 billion. It had the highest insurance penetration of 1.34% and density of INR3,228 in 2013-14.

GIC’s Secretary-General, Mr R Chandrasekaran, said: “Traditionally, Maharashtra has been the highest premium-producing state, mainly because of Mumbai being the financial capital of the country. “However, from the GIC data, it seems that many other states, including New Delhi, have started producing premiums due to economic growth, high literacy and more car-owning young people going for motor and health insurance.”

The Internet will help drive insurance sales of up to INR4trillion (US$62.5 billion) annually in about five years as customers in non-metro cities and youngsters buy more policies online, according to a joint survey by Google India and private non-life insurer ICICI Lombard General Insurance.

“Our studies indicate that Internet will influence INR3-4 trillion worth of insurance sales in India by 2020. Findings from this report clearly outline that consumers are shifting to the Internet at a more rapid pace than perceived earlier,” said Mr Vikas Agnihotri, Industry Director, Google India. The study, based on an offline survey of 3,007 respondents aged 25-55 who were active Internet users, was conducted to understand the level of comfort and current usage of online purchase of non-life insurance products.

Internet adoption was found to be higher for motor insurance with 24% of users buying these policies online compared to 12% of users buying the health insurance policies online. The findings show Internet users in the 25-35 age bracket are the most active in buying non-life insurance products online. For those who turn to the Internet to carry out research on health and motor insurance products, respondents cited “brand” as the most vital factor, with 88% saying the reputation of the company influenced their purchase, while 67% said that they were influenced by word of mouth.

The findings of this Google India/ICICI Lombard survey correspond with those set out in a report titled “Digital@Insurance- 20X By 2020” by Boston Consulting Group (BCG) and Google India last year that said that insurance sales via online channels are expected to grow 20 times by 2020, with overall Internet influenced sales to be around INR3-4 trillion. The report said that estimates are that three in every four insurance policies sold by 2020 would be influenced by digital channels during either the pre-purchase stage, purchase or renewal stages.

Non-life insurers and the industry regulator plan to ask the National Disaster Management Authority (NDMA) to make earthquake-resistant construction codes mandatory for those seeking insurance against earthquake damage.

The move, by the insurers and the Insurance Regulatory and Development Authority of India (IRDAI), is aimed at minimizing potential losses to insurers and re-insurers arising from earthquake damage, reported the Livemint news website citing three people familiar with the development. The call is being made in the wake of the 25 April magnitude-7.9 earthquake that rocked Nepal. More than 7,500 people have died as a result of the disaster and the death toll is expected to rise higher. More than 14,500 people have been injured. Hundreds of thousands have been rendered homeless. While some Indian insurers have an exposure to Nepal’s general insurance market, the General Insurance Corporation of India or GIC Re is the top reinsurer in Nepal, with liabilities of US$160 million in the worst scenario, said Mr Ashok Kumar Roy, CEO of GIC Re. However, the exact extent of its losses in Nepal is still being determined by surveyors. Parts of India were also affected, resulting in at least 70 deaths in Indian territory.

Insurers are keen to push the authorities into making it mandatory for builders, engineers and architects to adhere to earthquake-resistant building codes if the residents of such buildings wish to buy home or property insurance cover at the existing low premiums. At present, the premium for a conventional home insurance policy, including cover against natural and man-made calamities, is as low as INR60-80 per INR100,000 (US$1,575). At the prevailing rates, a 2,000 sq-ft house can be insured forINR3.5-7 million for an annual premium of INR2,000-4,500. If the policyholder buys the cover for 10 years or more at one go, the premium is be even lower as most insurers offer large discounts in such cases.

“Buildings should be made earthquake-proof like in Japan. India should emulate that model and follow earthquake-proof building codes without delay,” said Mr Sanjay Datta, Chief of Underwriting and Claims at ICICI Lombard General Insurance, adding that such codes should at least be made mandatory for earthquake-prone regions. Building codes have already been prescribed in some states but they are not mandatory for builders and developers.

“Insurers should refuse to extend property insurance cover to buildings if the code has not been followed and the property has not been made earthquake-resistant,” said Mr Roy, adding that this message would be put across by insurers to NDMA. “The premium for non-earthquake-resistant buildings should be made 10 times the premium for earthquake-proof properties,” he added. If NDMA accepts the insurance industry’s proposals, it may also help lower losses sustained by the central government, which is forced to compensate for losses in the event of a major calamity as insurance penetration in the country is low.

Paris-headquartered insurer AXA has received the Indian government’s approval to raise its stake in two local insurance joint ventures with Bharti Enterprises to 49%, according to a government statement.

This is the first stake increase proposal to get the green light from the Foreign Investment Promotion Board (FIPB) since Parliament amended the insurance law in March to increase the foreign ownership limit in insurance companies in India to 49%. AXA holds a 26% stake each in Bharti AXA Life Insurance and Bharti AXA General Insurance, with Bharti Enterprises owning the remainder. The increase in AXA’s stake will see the French insurer pump INR8.59 billion (US$135 million) into the life insurance venture and INR4.31 billion in the general insurance venture, India’s Finance Ministry said in a statement. Other foreign insurers are planning to increase their stake in their Indian insurance joint ventures as well.

American insurer Cigna will increase its stake in Indian JB-Cigna TTK Health Insurance from the present 26% to 49%. Separately, Bank of India has started the process to dilute its stake in Star Union Dai-ichi Life Insurance from the existing 48% level to 25-28%. Star Union Dai-ichi Life Insurance is a joint venture between Bank of India, Union Bankof India (26% stake) and Tokyo-based Dai-ichi Life Insurance (26%). Japanese insurance giant Tokio Marine is set to increase its stake in its life insurance joint venture in India — Edelweiss Tokio Life Insurance, reported the Times of India. The hike will be effected through an issue of fresh equity and result in a capital infusion of INR4.5-5 billion into the joint venture. Tokio Marine currently holds a 26% stake in the venture.

In March, State Bank of India (SBI), the country’s largest lender, announced that it would divest a stake of up to 10% in its life insurance arm SBI Life. The life insurer is a joint venture between SBI and BNP Paribas Cardif of France. At present, SBI owns 74% of the total capital and BNP Paribas Cardif has the remaining 26%. SBI also said that it would dilute its stake in its general insurance venture SBI General. The bank currently holds 74% of the non-life insurer while Insurance Australia Group owns 26%. After the divestment, SBI will have a 51% stake with IAG holding the remaining 49%.

India’s state-owned national reinsurer, General Insurance Corporation of India (GIC Re), is expecting claims worth US$50 million from the Nepal earthquake, which is lower than previously thought.

GIC Re, which is the largest reinsurance partner of the Nepalese insurance industry, has a gross exposure in the Nepalese insurance market of around US$140 million, reported the Times of India. “So far we have not received any cash-calls from any of our cedents. Much will depend on the damages suffered by the insured properties,” said GIC Re. “We reiterate our commitment to accord top priority to all claims arising out of this tragic event.” The company has sent a survey team to Nepal to assess damage caused by the quake.

A massive earthquake measured at 7.9 on the Richter scale rocked Nepal on 25 April, followed by another one measuring 6.7 the next day. The earthquake is the worst to hit the region in 80 years and has caused more than 6,700 deaths and injured more than 14,000 people. “It will take some time for an actual picture to emerge. However, we expect the claims to remain with in US$50 million in the worst case scenario,” said GIC Re.

This loss estimate is smaller than one given by GIC Re Chairman and Managing Director, Mr A K Roy, earlier last week. He had said that GIC Re expected to pay at most INR10 billion (US$160 million) in claims against the damages caused by the massive earthquake. Claims are expected from segments like power plants, housing complexes, commercial buildings and hotels.

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.