Indian Insurance Business Status and Future Growth

Rs. 281 billion Indian general insurance industry reported a compounded annual growth rate (CAGR) of 15.1% over the last 5 years. Currently, there are 14 active general insurance companies in the country, including four from the public sector. Over the last 5 years, the private sector entities have reported strong growth, and together they now have a market share of around 60%. While the public sector players remain the largest in the industry, the gap between the top three private sector players and the public sector entities has narrowed substantially during the last few years. Overall, the top eight players in the Indian general insurance industry continue account for over 90% of the total business. In terms of business lines, motor and health, which are predominantly retail lines, now account for over 60% of the total business, as against around 50% five years back.

The environment is expected to remain challenging for the domestic general insurance industry with pricing sufficiency in several business lines coming under strain due to global financial crisis of 2008. The smaller private players in particular are likely to face the pressure to scale up in order to achieve long term sustainability, which in turn could lead to higher competitive pressures. Currently, private players targeting growth in retail lines are investing in expanding their distribution reach, which again is creating additional pressures for market share. The current pricing environment is also expected to contribute to hardening of re-insurance rates.

Private players would require capital infusion for future growth. With most of the private entities being joint ventures, balancing the shareholding and business objectives of the partners while infusing capital to sustain growth can be a challenge. This is further compounded by the weak underwriting environment at present. ICRA’s insurance sector ratings would continue to consider promoter commitment to the business as a key input.

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