indian insurance industry - recent industry trends - part - 5

Recent Industry Trends

Part 5

Indian Insurance Industry: Reaching out to Exponential Growth

Recent trends in the Indian Insurance Sector

a. Bancassurance is emerging as a major channel for distribution of insurance products- Bancassurance means selling insurance product through banks. Banks and insurance company come up in a partnership wherein the bank sells the tied insurance company's insurance products to its clients. Globally, bancassurance has emerged as an important channel for distribution of insurance products. Various international studies have shown that a bancassurance strategy has indeed saved costs of insurance companies in the long run.


In India, the concept of bancassurance was first introduced in 2000 when insurance sector was opened for the private sector. Post 2010, bancassurance has emerged as a major channel for distributing insurance products given their reach with retail customers. Driven by a large captive customer base, banks’ strong brand recognition, and growing branch network, banks have been able to successfully sell insurance as an add-on product with other banking products. In September 2015, the bancassurance model received a further push, with the insurance regulator notifying a new framework for corporate agents, which allowed banks to tie up with up to three insurers each in life, non-life and health insurance segments to increase the penetration.


It is expected that this channel will emerge as a dominant distribution channel in next five to ten years. Rapid increase in banking network and low cost of managing this channel are likely to make bancassurance a powerful as well as popular channel. The share of banks in individual new business premium has increased from 39.0% in 2011-12 to 47.4% in 2014-15.


b. Growing online channel is quickly emerging as a cost effective model for distribution of insurance products Insurance companies are also exploring other cost-effective modes of distribution such as the ‘online channel’. As per estimates by BCG, the overall online market for insurance sector stands at around 1% for both life and non- life segments. In life insurance, term plans are the most bought product online, while in non-life, it is motor, health and travel insurance. The online market has grown six to seven times in the past six to seven years. This channel is expected to gain significant momentum in the coming years as insurance awareness grows among people.


c. Launch of new and innovative products with high levels of customization With the passing of the Insurance Laws (Amendment) Bill 2015, the sector has witnessed a fresh inflow of capital, and introduction of new and innovative products. Post the approval of 49 per cent direct foreign investment in the sector, new players have entered the market leading to more, new and innovative product offerings for consumers to choose from. Further in a move towards providing customized insurance, more number of life insurance to general insurance players are offering a customized insurance plan based on certain fixed parameters and guidelines. Amongst all the insurance segments, health insurance has witnessed maximum innovation- Life stage based plans, city based plans, and many new innovative products are being introduced by various insurance companies to tap the health insurance market.


d. Digital technologies are expected to transform insurance business- The role of technology has brought about a major change in the sector. As per a recent report from Accenture, it is expected that the next wave of technology- Internet of Things (IoT), platform-based ecosystems and artificial intelligence will significantly change and transform the very nature of the insurance industry. The emerging digital technologies- intelligent automation, liquid workforce, platform economy, predictable disruption and digital trust are offering insurers an opportunity to shift from their traditional business model to automated models which they can automatically assess and price risk directly, individually and in real-time. This digital transformation in insurance companies will involve continuous disruption to existing business models, products, services and experiences enabled by data and technology.


Digital services offer convenience, choice and comparison. Digital technologies can be rooted across the core elements of the insurance value chain, right from product development to claim settlement. Many Insurers are now using technology to track all its potential claims, thereby speeding up claim verification. Moreover, these technologies enable insurers to leverage historical data for predicting future patterns so as to gain a deeper understanding of the emerging needs of their customers, partners and employees. This information can be used to build a suitable digital strategy.


An effective digital strategy can allow insurers to reduce customer service costs, increasing customer fulfilment and retention, while enhancing process efficiency. As a part of their digital strategy, increasing number of insurance companies are developing mobile applications to meet the growing demand for real time services among smartphone users. The mobile applications also offer a significant potential for enhancing customer service experience in the form of speedier sales closure, better access to policy details and making hassle-free renewal payments. As per a recent EY global Digital Survey it was found that insurers who developed a digital strategy were more successful than their competitors at reducing customer service costs while increasing customer loyalty.


e. Growing market share of private players in the life insurance segment The share of private sector in the life insurance business has witnessed a marginal increase in the FY15 over FY14. On the basis of total premium income in life insurance business, the share of private insurers has increased from 24.61 per cent in 2013-14 to 26.95 per cent in 2014-15. Private insurers gained market share mainly because of high growth recorded in bancassurance channel. Moreover, rationalization & transparent pricing along with the smart interplay of digital and technology push has helped private insurers to market and deliver products better than before, thereby resulting in an increased share in the overall business.


f. Regulatory reforms to promote a competitive environment in both the life and non-life insurance sectorsThe regulatory framework in the country aims at providing transparency, simplifying products and services and creating a favorable business environment for all the stakeholders in the insurance sector. However, the recurring changes in regulations continued to upset the business models of many insurers during the last 10 years.


While a number of changes in the recent past had an adverse impact on the sector, some of the recent regulatory developments that have impacted the sector favorably are-


Insurance Laws (Amendment) Act 2015: This regulation has had a favorable impact on insurers in multiple ways- a) Increase in insurance FDI limits- The Insurance Laws (Amendment) Bill was passed in March 2015, increasing the FDI limit to 49 per cent from 26 per cent. This move was aimed at bringing in more foreign capital, technical know-how and exposure to global best practices for the Indian insurance industry. The increase in foreign investment cap has already brought in nearly Rs. 15,000 crore into the domestic insurance sector in the past year. Post the announcement, many global majors have evinced interest in raising stake in their Indian subsidiaries. The list of foreign investors who have announced plans to increase stakes in their ventures includes French insurer Axa, Japan's Nippon Life and Mitsui Sumitomo Insurance, Bupa of United Kingdom and Dutch insurer Aegon, BNP Paribas Cardif, IAG, Aviva, Standard Life, AIA, QBE and Fairfax have also announced plans to increase stakes in their ventures.


b) Abolition of standard prescribed expense limits- The new law eased the regulation around insurer’s annual management expenses. The earlier law limited the insurer’s ability to expand into newer territories involving high set up costs. As per the new provisions IRDA has been authorized to regulate management expenses of insurers, thereby bringing in more flexibility to define expense limits. c) Relaxed provisions for payout to agents -The new law has removed the restriction of maximum payout to agents or any other intermediary. Under the new provisions, the regulator is expected to regulate the commission at a product level, thereby ensuring meeting of product margins.

Recent trends in the Indian insurance sector

d) Task of hiring agents assigned to insurers- The new regulation allows the regulator to frame rules regarding the agent’s eligibility, qualifications and other related aspects. In an attempt to make the agent hiring process more consultative, the insurers have been permitted to appoint the agents without any intervention from the regulator. e) Withdrawal of requirement of deposit with the RBI- Insurers were earlier required to maintain a deposit of USD 1.5 mn with the Reserve Bank of India. In the amended bill, this requirement has been waived off, offering flexibility to new insurers with lower top-line to effectively deploy this additional fund.

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indian insurance industry - recent industry trends - part - 5

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