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India: Life is positive

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Source: Asia Insurance Review | Jan 2016

The life industry with 24 players continues to expand with most companies reporting growth in premium income in the first half of the current financial year. Two CEOs from the market speak about the positive impact from the new Insurance Bill and the implementation of various government mass insurance schemes, as well as the major challenges faced by the sector today.
Having gone through testing times over the past 15 years with increased competition, regulatory changes and economic slowdown, the Indian life industry finds itself in a much comfortable position now. 
   Recent data released by the Life Insurance Council reveals that the 23 private insurers posted a 28.31% y-o-y growth in new premiums to INR17,125.81 crore (US$2.55 billion) in the first six months of the current financial year against INR13,346.91 crore in the corresponding period in the financial year 2014. 
   The country’s largest life insurer, the public sector Life Insurance Corporation of India (LIC), saw a growth of 9.29% y-o-y in new premiums to INR39,161.78 crore compared to INR35,833.2 a year back.
Industry in growth mode again 
The Indian life market with current penetration levels of 2.6% offers huge opportunities for growth. Rising income levels, economic growth and a highly favourable demographic profile will help drive future growth of this sector. 
   “For ensuring a future which is characterised by a well-rounded industry growth and which maximises value creation for all the stakeholders, the sector must work towards capitalising on every opportunity,” said Mr Vighnesh Shahane, CEO, IDBI Federal Life Insurance Company. 
   He believes that some of the areas that the industry must pursue include right selling practices and superior market conduct, efficiency in distribution through synergy among various channels and embracing digital whole heartedly. “This will disrupt the traditional business structures, keep costs under control, engage customers better and most importantly, drive distribution advantages.” 
Large population presents huge opportunity
The large population in India that is currently underinsured or uninsured presents a huge opportunity for the life insurance industry. 
   “As more youngsters enter the workforce, there will be a burgeoning need for financial security and life insurance will play a crucial role in providing this,” said Mr Sandeep Bakhshi, Managing Director & CEO, ICICI Prudential Life Insurance Company. 
   He said it is crucial for the industry to enhance penetration so as to be able to reach out to the farthest corner of the country. ICIC Prudential has been using technology to reach a larger section of the population. “Going forward, we believe the role of technology will grow larger as it provides an efficient route to increasing the penetration of life insurance,” he said. 
Figure 1: Weighted new business premium collections of private life insurers
New government initiatives helpful for penetration
The Central government’s new financial inclusion initiatives, which includes a number of mass insurance schemes like the Pradhan Mantri Suraksha Bima Yojana (PMSBY) scheme is expected to bring a significantly large portion of the country’s population under the ambit of insurance. 
   “For those individuals, who had no idea about the very concept of life insurance, this scheme serves as an eye-opener and we believe this will lay a strong foundation for the future of life insurance in India,” said Mr Bakhshi. 
   As a first step, the government has got the corporate sector to initially pick up the tab. “The claims experience that builds over the next three years will determine if the corporate profit will get hit,” said Mr Shahane on the new schemes. He is of the opinion that these schemes will be profitable given the scale and size of the programmes.
Impact of FDI hike
The passage of the Insurance Bill has been path-breaking for the industry in recent times as this has made it possible for the FDI cap to be raised from 26% to 49%. 
   As a result of this, a number of foreign partners in life insurance joint ventures in India have announced their plans to increase their stakes in their respective JVs. 
   “The passing of the Insurance Bill is a milestone for the industry as it opens up avenues for insurers to raise the much required capital to scale up operations. Given the country’s demographics and the steady growth of the economy, there is a huge latent potential for life insurance,” said Mr Bakhshi. 
   Apart from additional capital, the new Bill allows companies to bring international expertise and best practices of their foreign JV partners which will be beneficial to the customers. “The passage of this bill not only augurs well for the life insurance industry but also offers a number of immediate benefits to the customers,” said Mr Shahane. 
Customer is king now
One such benefit for the customers is regarding the assignment of policies that has become easier and clearer than before. 
   “In the past, if one assigned a policy to a creditor, in the case of the death of the policyholder, there was ambiguity on the payouts that would go to the creditor and the nominee. But now, the creditor banks can only get the money that is due to them and the rest will go to the nominee,” explained Mr Shahane. 
   The nomination process is less ambiguous now as well as nominees used to have no title before and it was left to the nominee to divide the payouts with the other legal heirs of the policyholders in equal measure. 
   Another benefit for customers is that the insurance company cannot deny a claim after three years post-issuance of policy. “On the whole, the bill does a lot more than just bringing in additional capital for business growth. It adds immense value to the lives of the customers as well,” said Mr Shahane.
Players here for the long haul
The performance of the banking, financial services and insurance (BFSI) sector is a function of the overall macro-economic environment that prevails in the country. The growth potential of the Indian life Insurance industry remains intact. Most foreign players entered this industry with a long-term mindset. 
   “With opening up of the industry and with regulatory clarity emerging, most players are evaluating their options to expand further in the Indian insurance market,” said Mr Shahane. The regulatory changes have made life insurance products more customer friendly and cost effective. 
   “Over the last one year, there has been an increase in financial savings, which in turn has positively impacted life insurance as well,” said Mr Bakhshi. He believes that since life insurance business is capital intensive and the passing of the insurance bill will attract long term funds, these and other changes bode well for the industry.
Figure 2: Comparison of market share of private life insurers

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