insurance - ibef · pdf file · 2017-11-24porters five forces analysis ... the...

For updated information, please visit www.ibef.org November 2017

INSURANCE

Table of Content

Executive Summary……………….….…….3

Advantage India…………………..….……...4

Market Overview and Trends……….….…..6

Porters Five Forces Analysis.….…..……....22

Strategies Adopted……………...…………..24

Growth Drivers……………………................26

Case Studies……………....……..………..…39

Opportunities…….……….......………………31

Useful Information……….......…………...….45

For updated information, please visit www.ibef.org Insurance 3

EXECUTIVE SUMMARY

The domestic life insurance industry registered 26.13 per cent growth for new business premium in financial

year 2015-16, generating a revenue of US$ 20.34 billion largely due to the high growth in the group single

premium policy. During January to September 2017 period, the life insurance industry recorded a new

premium income of Rs 0.92 trillion (US$ 14.28 billion), indicating a growth rate of 21.14 per cent.

The non-life insurance premium market grew at a CAGR of 12.1 per cent over FY04-161, from US$ 3.4

billion in FY04 to US$ 13.35 billion in FY161.

Rapidly growing

insurance segments

The market share of private sector companies in the non-life insurance market rose from 13.12 per cent in

FY03 to 43.64 per cent in FY181.

Increasing private

sector contribution

Crop insurance market in India is the largest* in the world and covers around 32 million farmers; which

accounted for nearly 19 per cent of the total farmers in the country.

Strong growth in the automotive industry over the next decade to be a key driver of motor insurance.

Crop, health and motor

insurance to drive

growth

Notes: CAGR - Compound Annual Growth Rate, 1: Upto September 2017,* As of 2015 Figures are as per latest data available

Source: Swiss-Re, IRDA Annual Report, Mckinsey estimates

Insurance

ADVANTAGE INDIA


ADVANTAGE INDIA

Growing interest in insurance among

people; innovative products and

distribution channels aiding growth

Increasing demand for insurance

offshoring

Growing use of internet has started

increasing demand

Life insurance in low-income urban

areas

Health insurance, pension segment

Strong growth potential for micro

insurance, especially from rural areas

Insurance companies in India have

raised over Rs 35,000 crore (US$ 5.43

billion) through public issues in 2017*.

Increase in FDI limit to 49 per cent

from 26 per cent, as proposed in 2012,

will further fuel investments

Tax incentives on insurance products

Passing of Insurance Bill gives IRDA

flexibility to frame regulations

Clarity on rules for insurance IPOs

would infuse liquidity in the industry

Repeated attempts to make the sector

more lucrative for foreign participants

ADVANTAGE

INDIA

Notes: 2020E - Expected value for 2020; Estimate according to BCG, IRDA - Insurance Regulatory and Development Authority, * - up to October 2017

Source: IRDA

Insurance

MARKET OVERVIEW

AND TRENDS


EVOLUTION OF THE INDIAN INSURANCE SECTOR

Source: IRDA

Notes(1): As of September 2012, LIC - Life Insurance Corporation of India, GIC - General Insurance Corporation of India, IRDA - Insurance Regulatory and Development Authority

All life insurance companies were

nationalised to form LIC in 1956 to

increase penetration and protect policy

holders from mismanagement

The non-life insurance business was

nationalised to form GIC in 1972

Post liberalisation, the insurance industry recorded significant growth;

the number of private players increased to 44 in 2012(1)

The industry has been spurred by product innovation, vibrant distribution

channels, coupled with targeted publicity and promotional campaigns by

the insurers

In December 2014, Government approved the ordinance increasing FDI

limit in Insurance sector from 26 per cent to 49 per cent. This would

likely to attract investment of US$ 7-8 billion

As per Union Budget 2016-17, new health

insurance scheme under the National Health

Protection Scheme has been introduced

In Union Budget 2017, government

increased the coverage from 30 per cent to

40 per cent under Pradhan Mantri Fasal

Bima Yojna.

Insurance companies raised more than US$

5 billion from public issues.

Malhotra Committee recommended opening

up the insurance sector to private players

IRDA, LIC and GIC Acts were passed in

1999, making IRDA the statutory regulatory

body for insurance and ending the monopoly

of LIC and GIC

In 2015, Government introduced Pradhan

Mantri Suraksha Bima Yojna and Pradhan

Mantri Jeevan Jyoti Bima Yojana

Government introduced Atal Pension Yojana

and Health insurance in 2015

1956-72 1993-99 2015 2000-14 2016-17

onwards


IRDA GOVERNS THE INDIAN INSURANCE SECTOR

Source: IRDA, Aranca Research

Ministry of Finance

Government of India)

Insurance Regulatory and

Development Authority (IRDA)

Private (23)

Private (27)

Life insurance (24 players) Non-life insurance

(33 players) Re-insurance (1 player)

Public (1) Public (6) Public (1)

Insurance Regulatory and Development Authority (IRDA)

• Established in 1999 under the IRDA Act

• Responsible for regulating, promoting and ensuring orderly growth of the insurance and re-insurance business in India


INDIA’S INSURANCE MARKET CONTINUES TO BE

STRONG

Source: Reserve Bank of India (RBI), Aranca Research;

Note: CAGR - Compounded Annual Growth Rate, FY17 1 - Till December 29, 2016

The insurance industry is expected to reach US$ 280 billion by 2020. In 2016, around 46 private players were operating in the industry, while Life

Insurance Corporation accounted for 72.61 per cent of the country’s insurance market.

Individual single premiums received increased from US$ 0.16 billion in 2015 to around US$ 1.02 billion in 2016.

Indian Government announced its plans to divest US$ 1.63 billion worth of stakes in PSU general insurance companies to execute the steep

disinvestment target of US$ 10.78 billion in FY17.

IRDAI has allowed insurers to invest up to 10 per cent in additional tier 1 (AT1) bonds, that are issued by banks to augment their tier 1 capital, in

order to expand the pool of eligible investors for the banks.


PREMIUMS GROWING AT A BRISK PACE

19

24

34

50

48

56

64

60

52

52

61

.78

54

.58

4

5

6

7

7

8

10

11

12

13

13

.9

14

.3

0

10

20

30

40

50

60

70

80

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

Life Non life

Source: Insurance Regulatory and Development Authority, Aranca Research, General Insurance Council

Note: CAGR - Compound Annual Growth Rate, Figures are as per latest available data

Visakhapatnam port traffic (million tonnes) Gross premiums written in India (US$ billion)

CAGR 10.49%

The total insurance market expanded from US$ 23 billion in FY05

to US$ 68.88 billion in FY16.

Over FY05–FY16, total gross written premiums increased at a

CAGR of 10.49 per cent .

Life insurance companies in India earned US$ 25.12 billion as first

year premiums in FY17.

Gross premium underwritten by general insurers in India reached

US$ 13.3 billion in FY18 (up to September 2017).

Gross premium written in India for non life insurance sector for

FY16 is US$ 14.33 billion and in FY16, the gross premium written

in India for life insurance sector stood at US$ 54.58 billion.

In November 2016, the total growth in life insurance premium was

around US$ 2.38 billion as compared to US$ 1.12 billion in

November 2015, witnessing a growth of 113 per cent. Similarly

during the same period, the individual single premium grew by

US$ 995 million as compared to US$ 164.06 million in 2015,

recorded a growth of more than 500 per cent.


LIFE INSURANCE MARKET APPEARS VIBRANT

1 2 3 6 1

3

14

17

19

18

14

13

15

15

10

11

14

17

21

28

37

34

39

45

42

38

39

39

.3

39

.6

0

10

20

30

40

50

60

70

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

Private Public

Source: Swiss Re, BCG, Insurance Regulatory and Development Authority, Aranca Research; , ICRA, Financial Express

Note: CAGR - Compounded Annual Growth Rate, Figures are as per latest data available

Visakhapatnam port traffic (million tonnes) Growth in life insurance premiums (US$ billion) In August 2017 the Life Insurance industry reported a 19 per cent

growth in overall annualised premium equivalent with the help of

both private players and Life Insurance Corporation .

The life insurance market grew from US$ 10.5 billion in FY02 to

US$ 54.58 billion in FY16.

Over FY02–FY16, life insurance premiums expanded at a CAGR

of 12.49 per cent.

The life insurance industry has the potential to grow 2-2.5 times by

2020 in spite of multiple challenges supported by long-term trends

and fundamentals underlying household savings.

Private life insurers in India posted 28 per cent year-on-year

increase in its annual premium equivalent (APE) for June 2017.

Life insurance industry in India is expected to grow at 15-18 per

cent on APE basis in FY18.

CAGR 12.49%


INCREASING PENETRATION AND DENSITY OF LIFE

INSURANCE OVER THE YEARS

Source: Insurance Regulatory and Development Authority (IRDA), Aranca Research, BCG – The Changing Face of Indian Insurance

Note: Life insurance density* is defined as the ratio of premium underwritten to the total population in a given year, CAGR - Compound Annual Growth Rate , Figures as per latest available

data

3.1

7

3.4

4.8

4.7

4.6

5.2

5.1

4.1

3.9

6

3.9

3.3

3.4

4.0

0

1

2

3

4

5

6

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17E

Insurance penetration (%) Insurance density (US$ )

38

.4

46

.6

47

.4 5

4.3

64

.4

59

53

.2

52

55

54

.7

54

.99

0

10

20

30

40

50

60

70

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6E

Insurance density in India increased from US$ 38.4 in 2006 to US$ US$ 54.99 in 2016 (estimated).

Insurance penetration reached 3.4 per cent in FY16 and is expected to cross 4 per cent in FY17.


INCREASING PRIVATE SECTOR ACTIVITY IN LIFE

INSURANCE SEGMENT


Note: Figures are as per latest data available, E- estimated, based on first year premium collection

Over the years, share of private sector in life insurance segment has grown from around 2 per cent in FY03 to 29.6 per cent in FY16. The share of

private life insurers is estimated at 28.93 per cent in FY17.

98.00%

2.00%

Public sector

Private sector

Share of public and private sector in life insurance segment (%)

FY03

Share of public and private sector in life insurance segment (%)

FY17E

71.06%

28.93%

Public sector

Private sector


LIC CONTINUES TO DOMINATE LIFE INSURANCE

SEGMENT

Source: LIC, Aranca Research, IRDA

Visakhapatnam port traffic (million tonnes) Market share of major companies in terms of first year life

insurance premium collected (FY17) As of March 2017, life insurance sector had 23 private players in

comparison to only 4 in FY02.

With 71.07 per cent share market share in FY17, LIC continues to

be the market leader, followed by ICICI Prudential.

71.07%

4.49%

4.97%

5.80%

13.67%

LIC

ICICI

HDFC

SBI Life

Others


SHIFT TOWARDS NON-LINKED INSURANCE PLANS

41% 42% 37%

24%

17% 15% 12% 13%

59% 58% 63%

76% 83% 85% 88% 87%

0%

20%

40%

60%

80%

100%

120%

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Linked Premium Non linked Premium

Source: IRDA Annual Report, KPMG Analysis

Notes: *Growth rate in INR terms, Linked Plans - In linked plans, a part of the investment goes towards providing you life cover while the residual portion is invested in a fund which in turn

invests in stocks or bonds; the value of investments alters with the performance of the underlying fund, Figures are as per latest available data

In Non-Linked plans, a major chunk of investible funds are in debt instruments, giving steady and almost assured returns over the long term

Visakhapatnam port traffic (million tonnes) Share of linked and non-linked insurance premium The industry is witnessing a shift towards the traditional non-linked

insurance plans

The share of non-linked insurance increased from 59.1 per cent in

FY09 to 87 per cent in FY16


STRONG GROWTH IN NON-LIFE INSURANCE MARKET


Note: CAGR - Compound Annual Growth Rate FY16: Till November 2015

The non-life insurance market grew from US$ 2.6 billion in FY02 to US$ 8.8 billion in FY17.

Over FY06–16, non-life insurance premiums increased at a CAGR of 11.05 per cent.

The number of policies issued increased from 65.55 million in FY08 to 161.17 million in FY17, at a CAGR of 10.5 per cent.

65

.55

67

.06

88

.49

91

.65

10

0.2

9

10

9.5

11

6.6

8

12

6.0

6

12

6.4

8

16

1.1

7

0

20

40

60

80

100

120

140

160

180

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

0.8

1.2

1.9

2.7

2.7

2.9

3.8

4.7

5.1

5.7

6.3

5.9

9.2

5

3.3

3.6

3.8

4.4

4.2

4.6

5.8

6.7

6.8

7.2

7.7

7.0

9

10

.55

0

5

10

15

20

25

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

Private Public

CAGR 11.05%

Growth in non-life insurance premium (US$ billion) Number of non-life insurance policies (million)

CAGR 10.5%


PENETRATION AND DENSITY LOWER, INDICATING

ROOM FOR GROWTH

Source: IRDA Annual Report, Swiss Re, Aranca Research

Note: CAGR - Compound Annual Growth Rate; IRDA Chairman, Mr. T S Vijayan

Non-life insurance penetration at current prices (per cent) Non-life insurance density (INR) (Gross Direct Premium/

Population(

The non-life insurance market grew from US$ 2.6 billion in FY02 to US$ 19.8 billion in FY17.

Non life insurance density increased from USD4.0 in FY04 to USD11.5 in FY16 at a CAGR of 11.13 per cent.

As per IRDA, in order to increase the market penetration in health insurance people are needed to be educated about the benefits of health

insurance along with providing incentives and free check-ups.

0.61 0.60 0.61 0.62 0.66

0.72 0.69 0.68 0.70

0.84

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

26

3.0

28

6.0

32

9.0

39

8.0

49

8.0

57

2.0

61

4.0

65

7.0

72

4.0

0

100

200

300

400

500

600

700

800

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

CAGR 15.44%


SHARES IN NON-LIFE INSURANCE MARKET: MOTOR

INSURANCE LEADS

Source: IRDA Annual Report, Aranca Research

Visakhapatnam port traffic (million tonnes) Break-up of non-life insurance market in India (FY18*) In FY18*, motor insurance accounted for 38.1 per cent of non-life

insurance premiums earned in India.

With Gross Direct Premiums at Rs 17,340.50 crore (US$

2.7billion) in FY18*, the health segment has a 23.9 per cent share

in gross direct premiums earned in the country.

Private players accounted for a share of around 48.18 per cent in

the Gross Direct Premiums generated in non-life insurance sector

while public sector companies and specialised garnering around

51.82 per cent share in September 2017

Major private players are ICICI Lombard, Bajaj Allianz, IFFCO

Tokio, HDFC Ergo, Tata-AIG, Reliance, Cholamandalam, Royal

Sundaram and other regional insurers

38.10%

23.90%

7.60%

4.20%

26.2%

Motor

Health

Fire

Marine

Others

Source: *till September 2017


HIGHER PRIVATE SECTOR PARTICIPATION IN NON-

LIFE SEGMENT


Note: CAGR - Compound Annual Growth Rate, * up to September 2017

The market share of private sector companies in non-life insurance segment rose from 15 per cent in FY04 to 45.4 per cent in FY16

The Gross Direct Premium of private companies increased from US$ 0.8 billion in FY05 to US$ 6.1 billion in FY16, witnessing growth at a CAGR

of 20.28 per cent during FY02-16. In FY17 it reached Rs 59,601.56 crore (US$ 8.88 billion)

0.8 1.2

1.9

2.7 2.7 2.9

3.8

4.7 5.1

5.7

6.3 6.1

8.9

0

1

2

3

4

5

6

7

8

9

10

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

Growing share of private sector Non-life insurance premium of private sector (US$ billion)

48.18%

48.18%

FY18*

48.18% 53.12%

FY04

Public sector Private sector


KEY PLAYERS IN THE NON-LIFE INSURANCE

SEGMENT

Source: IRDA Business Report, Aranca Research

Visakhapatnam port traffic (million tonnes) Market share of major companies in terms of Gross Direct

Premium collected (FY18*) The number of companies increased from 15 in FY04 to 24 in

FY17; six of these companies are in the public sector.

The public sector companies accounted for a cumulative share of

about 45.88 per cent of the total Gross Direct Premium in the non-

life insurance segment in Q1 FY18.

New India leads the market with 15.18 per cent share.

Private players are not far behind and compete better in the non-

life insurance segment. 15.18%

11.75%

11.28%

7.68% 9.58%

6.21%

4.93%

33.39%

New India

United India

National

Oriental

ICICI-Lombard Oriental

Bajaj Allianz

HDFC ergo

Others

Total size:

US$ 8.45

billion

Note: * up to August 2017


NOTABLE TRENDS IN THE INSURANCE SECTOR

New distribution channels like bancassurance, online distribution and NBFCs have widened the reach and reduced costs

Firms have tied up with local NGOs to target lucrative rural markets

In April 2017, IRDAI started a web portal – isnp.irda.gov.in – that will allow the insurers to sell and register policies online.

This portal is open to intermediaries in insurance business as well.

India Post Payments Bank (IPPB) plans to start selling insurance products and mutual funds of other companies by early

2018, and is to be open only to "non- exclusive" tie-ups. Nearly 100 firms, domestic as well as foreign, have showed keen

interest in partnering with the bank

Emergence of new

distribution channels

Notes: NBFC - Non Banking Financial Company, NGO - Non-Governmental Organisation, EV - Embedded Value

In the life insurance segment, share of private sector in the total premium increased to 29.6 per cent in FY16 from 2.0 per

cent in FY03

In the non-life insurance segment, share of private sector increased to 41.2 per cent in FY16 from 14.5 per cent in FY04

Growing market share

of private players

The life insurance sector has witnessed the launch of innovative products such as Unit Linked Insurance Plans (ULIPs)

Other traditional products have also been customised to meet specific needs of Indian consumers

Launch of innovative

products

Large insurers continue to expand, focusing on cost rationalisation and aligning business models to realise reported

Embedded Value (EV), and generate value from future business rather than focus on present profits

Mounting focus on EV

over profitability

Insurance

PORTERS FIVE

FORCE ANALYSIS


Porter’s Five Forces Framework Analysis

Supplier being the distributor or

agent have high bargaining power

because they have customer

database and can influence

customers in making choices

Bargaining Power of Suppliers

Similarity in services makes

switchover a potent threat

Investment oriented customers have

switched to other avenues

Threat of Substitutes

Insurance industry is becoming

highly competitive with 52 players

operating in the industry

Companies are competing on price

and also using low price and high

returns strategy for customers to lure

them

Competitive Rivalry

Other financial companies can enter

the industry

Overall threat is medium given that

entry is subject to license and

regulations

Threat of New Entrants

Bargaining power of customers

especially corporate is very high

because they pay huge amount of

premium

Bargaining Power of Buyers

Positive Impact

Neutral Impact

Negative Impact

Source: Aranca Research

Insurance

STRATEGIES

ADOPTED


STRATEGIES ADOPTED


Players in industry are investing in Information Technology to automate various processes and cut costs without

affecting service delivery. It is estimated that digitisation will reduce 15-20 per cent of total cost for life insurance

and 20-30 per cent for non-life insurance

From October 2016, IRDAI has mandated having an E-insurance (electronic insurance) account to purchase

insurance policies

Emergence of new

distribution

channels

Companies are trying to differentiate themselves by providing wide range of products with unique features. For

example, New India Assurance launched Farmers’ Package Insurance to covering farmer’s house, assets, cattle

etc. United India launched Workmen Medicare Policy to cover hospitalisation expenses arising out of accidents

during and in the course of employment

In March 2017, HDFC Life in collaboration with Haptik, has announced the launch of the country’s 1st life insurance

chatbot which will help the customer as a financial guide to aid them to choose the most suitable plans befitting their

needs.

Growing market

share of private

players

Focus on providing one kind of service help insurance companies in differentiation. For example, SBI is

concentrating on individual regular premium products as against single premium and group products Focus

The Insurance Law (Amendment) Bill, was passed in 2015 raises the foreign investment cap in the sector from 26

per cent to 49 per cent

Insurance

(Amendment) Law

2015

Insurance

GROWTH DRIVERS


DEMAND GROWTH FOR INSURANCE PRODUCTS SET

TO ACCELERATE … (1/2)

Source: ICICI, RBI Annual Report, Aranca Research

Notes: Financial savings denote investment in equity and debt instruments, E – Estimates, Figures are as per latest available data

Household savings India’s robust economy is expected to sustain the growth in insurance

premiums written

Higher personal disposable incomes would result in higher household

savings that will be channelled into different financial savings

instruments like insurance and pension policies

Household savings reached US$ 388.20 billion in 2016 from US$ 89

billion in 2000

89.0

306.0

373.7

339.3

378.2 388.2

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

2000 2010 2013 2014 2015 2016


1.5% 2.0% 5.0% 3.0%

6.0%

11.0% 8.0%

15.0%

20.0%

42.0%

45.0%

46.0%

44.0% 31.0% 18.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2005 2016 2025F

Elite(>30800) Affluent(15400-30800)

Aspirers(7700-15400) Next billion(2300-7700)

Strugglers(<2300)

209.10 266.5

304.8

304.8

DEMAND GROWTH FOR INSURANCE PRODUCTS SET

TO ACCELERATE … (2/2)

Visakhapatnam port traffic (million tonnes) Million household, 100% Per capita income and rural income are increasing

The number of middle class households (earning between US$

2,300 and US$ 30,800 per annum) is estimated to increase more

than fourfold to 234 million by 2025 from 113 million in 2005

Rising per capita income leads to increased spending on medical

and healthcare services

Lifestyle diseases are set to account for a greater part of the

healthcare market

Lifestyle diseases such as cardiac diseases, cancer and diabetes

are treated with the help of biotechnology products, thereby

boosting revenues of biotech companies

The growing GNI per capita, PPP of US$ 6,020 in FY15 resulted

in improved lifestyle due to increased purchasing power of

customers for healthcare

Source: Fortis Healthcare Limited 2008–09, McKinsey Quarterly, NCAER, Aranca Research

Notes: Income distribution is calculated in constant 2015 dollars; $1=65. Because of rounding, not all percentages add up to 100. F - Forecast


FAVOURABLE POLICY MEASURES AID THE SECTOR

IRDA recently allowed life insurance companies that have completed 10 years of operations to raise capital through

Initial Public Offerings (IPOs). Companies will be able to raise capital if they have embedded value of twice the paid

up equity capital

SBI Life has already raised funds through its IPO.

Life insurance

companies allowed

to go public

The government has also extended Rashtriya Swasthya Bima Yojana (RSBY) to cover unorganised sector workers

in hazardous mining and associated industries

In Union Budget 2017-18, the government introduced an insurance pension scheme that gives an assured return of

8 per cent for senior citizens through LIC to concentrate on social security.

Union Budget

2017-18

Insurance products are covered under the exempt, exempt, exempt (EEE) method of taxation. This translates to an

effective tax benefit of approximately 30 per cent on select investments (including life insurance premiums) every

financial year

In 2015, Tax deduction under Health Insurance Scheme has been increased to US$409.43 from US$245.66 and for

senor citizens tax deduction has been increased to US$491.32

Tax incentives

Revival package by government will help companies get faster product clearances, tax incentives and ease in

investment norms. FDI limit for insurance company has been raised from 26 per cent to 49 per cent, providing

safeguard and ownership control to Indian owners

Approval of

increase in FDI limit

and revival package

Notes: RSBY - Rashtriya Swasthya Bima Yojana, FDI - Foreign Direct Investment


RISING PRIVATE SECTOR INVESTMENT IN

INSURANCE

Investments from the private sector are increasing, as they see a

huge opportunity in the growing insurance sector of the country

Religare Health Insurance US$ 110.4 million by 2016

AEGON Religare Life US$ 71 million in 2010; plans to invest

US$ 445 million through 2016

HDFC Life

Planning to raise US$ 3.9 billion with 10

per cent stake sale. Through IPO which

is expected in September 2015

HDFC Life has enter the micro-

insurance segment by launching two

schemes named Jeevan Suraksha and

Credit Suraksha

Source: Towers Watson; Assorted news articles, Aranca Research

Most of the existing players are tying up with banks to expand

their distribution network

Few players like HDFC Life are planning to go public; others are

selling stakes to generate funds

In 2015, Insurance Bill was passed that will raise the stake of

foreign investors in the insurance sector to 49 per cent, fuelling

the participation of private sector investment in the insurance

sector in the country

In February 2017, Bank of Maharashtra partnered with insurance

company Cigna TTK Health, to market their insurance products in

the bank’s branches, across the country.

Dena Bank and Apollo Munich Health Insurance announced a

corporate agency tie up in March 2017. As per the tie-up, Dena

Bank would be distributing Apollo’s health insurance products.

Insurance

OPPORTUNITIES


INDIA’S INSURANCE MARKET OFFERS A HOST OF

OPPORTUNITIES ACROSS BUSINESS LINES


Opportunities for

Indian

insurance market

Low-income urban and

pension markets Crop insurance

Motor insurance

markets Micro-insurance

Health insurance

markets


NON-LIFE INSURERS: MOTOR INSURANCE MARKETS

Source: IRDA, ACMA, SIAM, Aranca Research

Note: E in the axis for the figures above refer to estimates, GDP - Gross Domestic Product, CAGR - Compound Annual Growth Rate, ACMA - Automotive Component Manufacturers

Association of India(1)– Data upto June 2016, *up tp September 2017

Strong growth in the automotive industry over the next decade will be a key driver of motor insurance

Proposed IRDA draft envisages a 10–80 per cent rise in premium rates for the erstwhile loss-making 3rd party motor insurance

In 2016, number of commercial vehicles and passenger vehicles sold in the country were recorded at 0.8 million and 3.4 million respectively, while

the number of two and three wheelers sold were 19.76 million

In FY18*, Motor and Health sector constituted 62 per cent of the non-life insurance market

Breakup of non-life insurance market in India FY18* Vehicle production in India (million units)

38.10%

23.90%

7.60%

4.20%

26.2%

Motor

Health

Fire

Marine

Others

3.4

0.8

19.76

10

2.4

30.2

0

5

10

15

20

25

30

35

Car CommercialVehicles

2&3 wheelers

2016 2021E


NON-LIFE INSURERS: HEALTH INSURANCE MARKETS

Only 1.5–2 per cent of total healthcare expenditure in India is currently covered by insurance providers.

Only 18 per cent of people in urban areas and 14.1 per cent in rural areas are covered under any kind of health insurance scheme

Total health insurance premiums increased from US$ 733.1 million in FY07 to US$ 4,084.03 million in FY16, witnessing growth at a CAGR of

21.03 per cent. Gross premium underwritten for health insurance was US$ 2.7 billion in FY18*.

In FY17 gross direct premium income underwritten under health insurance was US$ 4.78 billion.

Absence of a government-funded health insurance makes the market attractive for private players

Introduction of health insurance portability expected to boost the orderly growth of the health insurance sector

In July 2016, IRDA issued Health Insurance Regulations, 2016. These regulations replace the Health Insurance Regulations, 2013. As per these

new norms, companies will provide better data disclosure, pilot products, coverage in younger years, etc.

Private insurance coverage is estimated to grow by nearly 15per cent annually till 2020

Government-sponsored programmes expected to provide coverage to nearly 380 million people by 2020, driven by initiatives such as RSBY and

ESIC

RSBY is a centrally sponsored scheme to provide health insurance to Below Poverty Line (BPL) families and eleven other defined categories of

unorganised workers, namely building and other construction workers, licensed railway porters, street vendors, MGNREGA workers, etc.

Note: RSBY - Rashtriya Swasthya Bima Yojana, ESIC – Employees’ State Insurance Corporation, MREGA – Mahatma Gandhi National Rural Employment Guarantee Act., NSSO, up to

September 2017


STRONG POTENTIAL IN CROP INSURANCE

Source: Agricultural Insurance Company of India Annual Report, Department of Agriculture and Cooperation, IRDA, Aranca Research, Livemint, PTI

Awareness about crop insurance in India is 38.8 per cent and still crop insurance market in India is the largest in the world, covering around 30

million farmers. Over 9 million farmers benefited from ‘Pradhan Mantri Fasal Bima Yojana’ in 2016-17. Government of India released Rs 28386.91

crore (US$ 4.23 billion) in 2016-17 under various crop insurance schemes.

To provide crop insurance to farmers, Government has launched various schemes like National Agriculture Insurance Scheme (NAIS), Modified

National Agriculture Insurance Scheme (MNAIS) and Weather-based Crop Insurance Scheme (WBCIS)

Total sum insured under crop insurance is US$ 919.41 million in FY16

Government of India plans to increase the coverage to 50 million during the 12th Five-Year Plan

As of February 2017, the Central Government aims at enhancing crop insurance cover from 22 per cent of farmers to 50 per cent in the

forthcoming 2 years.

Number of farmers covered under insurance scheme (million) Sum Insured (US$ million)

10.1

6.9 7.3

10.4

6.7

10.5

0

2

4

6

8

10

12

FY11 FY12 FY13 FY14 FY15 FY16

877.1

516.0 487.1

1062.4

836.6

919.41

0

200

400

600

800

1000

1200

FY11 FY12 FY13 FY14 FY15 FY16

Note: Figures are as per latest available data

Insurance

CASE STUDIES


SBI LIFE

Source: SBI Life Annual Report, IRDA, Company website, Aranca Research Notes: CAGR - Compound Annual Growth Rate

SBI Life Insurance is a joint venture between Indian banking giant State Bank of India (74 per cent) and France headquartered BNP Paribas

Assurance (26 per cent). The company’s IPO was in September 2017

The company primarily deals in life insurance and pension plans with 758 offices across India. In FY16, it issued around 1.274 million insurance

policies.

Between FY08 and FY17, SBI Life’s profits increased at a CAGR of 36.91 per cent with its annual profits increasing to US$ 141.99 million by

FY17. In FY16, it accounted for a market share of 17.2 per cent among all life insurance companies.

The company earned US$ 837.5 million as net premium in Q2FY18.

Total premium collected (US$ billion) Net profit (US$ million)

1.4 1.6

2.1

2.8 2.8

1.9 1.8

2.1

2.4

3.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

200

7-0

8

200

8-0

9

200

9-1

0

201

0-1

1

201

1-1

2

201

2-1

3

201

3-1

4

201

4-1

5

201

5-1

6

201

6-1

7

CAGR 9.23%

8.4

39

.0 58

.2 8

0.2

11

8.6

11

4.5

12

2.8

13

6.0

13

1.5

14

2.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

200

7-0

8

200

8-0

9

200

9-1

0

201

0-1

1

201

1-1

2

201

2-1

3

201

3-1

4

201

4-1

5

201

5-1

6

201

6-1

7

CAGR 36.91%


TATA-AIA LIFE … (1/2)

Tata AIA Life Insurance Company Limited (Tata AIA Life) is a joint venture between Tata Sons (74 per cent) and AIA Group Limited (26 per cent).

Overall life insurance premium increased from US$ 198.8 million in FY06 to US$ 497 million in FY 17, witnessing growth at a CAGR of 8.68 per

cent over FY06-17.

The sum assured increased from US$ 4 billion in FY06 to US$ 10 billion in FY16, rising at a CAGR of 9.60 per cent. The company earned US$

96.98 million as premium in Q1 FY18.

4.0

0

9.0

0

9.0

0

10

.00

11

.00

13

.00

13

.00

10

.00

9.2

0

12

.00

10

.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

200

5-0

6

200

6-0

7

200

7-0

8

200

8-0

9

200

9-1

0

201

0-1

1

201

1-1

2

201

2-1

3

201

3-1

4

201

4-1

5

201

5-1

6

19

9 3

03

50

8 5

95

73

7

87

4

77

4

50

8

38

5

35

1

38

9

49

7

0

100

200

300

400

500

600

700

800

900

1000

200

5-0

6

200

6-0

7

200

7-0

8

200

8-0

9

200

9-1

0

201

0-1

1

201

1-1

2

201

2-1

3

201

3-1

4

201

4-1

5

201

5-1

6

201

6-1

7

Total life insurance premium (US$ million) Total sum assured (US$ billion)

CAGR 8.68% CAGR 9.60%

Source: Company website, IRDA, Aranca Research Notes: CAGR - Compound Annual Growth Rate, (1): As on September 30, 2016


TATA-AIG LIFE …(2/2)

Objective for establishing micro insurance

Fulfilment of corporate social responsibility

Increase brand recognition to boost market entry –today’s micro

clients maybe tomorrow’s high-premium clients

To target untapped markets and income groups of rural India

Key strategic decisions

The micro insurance business model must be separated from

business model

Selling micro insurance would require new, alternative distribution

mechanisms

The micro insurance business model

A special microinsurance

team called the Rural and

Social Team is formed

Identify and partner with

credible NGOs operating in

the local community

NGO suggests good

agents for microinsurance

policies (micro-agents)

A group of micro-agents

called a Community Rural

Insurance Group (CRIG) is

formed; it relies on direct

marketing of

microinsurance policies to

local community members

Local operations like

collecting and aggregating

the premiums, training

micro-agents, and helping

to distribute benefits

looked after by the NGO;

this saves administrative

costs for Tata-AIG

New business unit Partnering with NGOs Forming CRIGs Local operations

managed by NGOs

Source: Company website, Aranca Research


NEW INDIA ASSURANCE

New India Assurance, a wholly owned subsidiary of Government of

India, is the largest non-life insurance company in India with a

market share of 16 per cent in FY17 in the non-life insurance

segment

It is the largest non-life insurer in Afro-Asia, excluding Japan

New India Assurance has been selected as the Best General

Insurance Company by IBN Lokmat Channel in association with

Maharashtra Chamber of Commerce, Industry and Agriculture

(MACCIA)

The company has overseas presence in 22 countries: Japan, UK,

Middle East, Fiji and Australia

It has been rated as "A-" (Excellent) for six consecutive years,

indicating its excellent risk-adjusted capitalisation, prospective

improvement in underwriting performance and leading business

profile in the direct insurance market in India

Gross Direct Premium in the country increased from US$ 1.19 billion

in FY09 to US$ 2.3 billion in FY16, growing at a CAGR of 9.92 per

cent over FY09-16. The figure reached US$ 2.97 billion in FY17.

The company raised Rs 9,600 crore (US$ 1.49 billion) through its

IPO in November 2017.

Visakhapatnam port traffic (million tonnes) Gross Direct Premium (US$ billion)

Source: IRDA, Company website, New India Assurance Annual Report, A.M. Best Europe Ltd, Alfred Magilton Best Company Limited

1.1

9

1.2

7 1

.56

1.8

2

1.8

5

1.9

1

2.0

2 2

.31

2.9

7

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

200

8-0

9

200

9-1

0

201

0-1

1

201

1-1

2

201

2-1

3

201

3-1

4

201

4-1

5

201

5-1

6

201

6-1

7

CAGR 12.04%

Notes: CAGR - Compound Annual Growth Rate


ICICI LOMBARD GIC

Source: ICICI Lombard Annual Report, IRDA, Company website, Aranca Research Notes: CAGR - Compound Annual Growth Rate

ICICI Lombard GIC Ltd is a 74:26 joint venture between ICICI Bank Limited, India’s second largest bank, and Fairfax Financial Holdings Limited, a

Canada-based diversified financial services company. The company launched its Initial Public Offering in September 2017.

It has a market share of 8.39 per cent in the non-life insurance sector in FY16

As of FY16, ICICI Lombard GIC had 257 pan India branches with an employee strength of 7,954

Company’s Gross Direct Premium increased from US$ 812.5 million in FY09 to US$ 1704.1 million in FY17 at a CAGR of 9.7 per cent over

FY09-17. The gross written premium reached Rs 3,234 crore (US$ 503 million) in Q2 FY18.

4.0

4.5

5.6

7.6

9.2

11

.2

13

.8 1

5.8

17

.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

200

8-0

9

200

9-1

0

201

0-1

1

201

1-1

2

201

2-1

3

201

3-1

4

201

4-1

5

201

5-1

6

201

6-1

7

81

2.5

72

3.6

96

6.4

11

43

.1

11

82

.0

11

83

.5

11

46

.9

12

69

.1

17

04

.1

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0

1800.0

200

8-0

9

200

9-1

0

201

0-1

1

201

1-1

2

201

2-1

3

201

3-1

4

201

4-1

5

201

5-1

6

201

6-1

7

Gross Written Premium (US$ million) Number of policies issued (million)

CAGR 9.70% CAGR 20.46%

Insurance

USEFUL

INFORMATION


INDUSTRY ORGANISATIONS

3rd Floor, Parisrama Bhavan, Basheer Bagh, Hyderabad–500 004

Phone: 91-040-23381100

Fax: 91-040-66823334

E-mail: [email protected]

Insurance Regulatory and Development Authority (IRDA)

5th Floor, Royal Insurance Building, 14, Jamshedji TATA Road,

Churchgate, Mumbai–400020

Phone: 91-22-22817511, 22817512

Fax: 91-22-22817515


General Insurance Council

4th Floor, Jeevan Seva Annexe Bldg. S. V. Road, Santacruz (W),

Mumbai–400054

Phone: 91-22-26103303, 26103306


Life Insurance Council


GLOSSARY

CAGR: Compound Annual Growth Rate

IRDA: Insurance Regulatory and Development Authority

IPO: Initial Public Offering

FDI: Foreign Direct Investment

LIC: Life Insurance Corporation of India

GIC: General Insurance Corporation of India

NBFC: Non-Banking Financial Company

NGO: Non-Governmental Organisation

RSBY: Rashtriya Swasthya Bima Yojana

PFRDA: Pension Fund Regulatory and Development Authority

GDP: Gross Domestic Product

ESIC: Employees State Insurance Corporation

FY: Indian Financial Year (April to March)

So, FY12 implies April 2011 to March 2012

GOI: Government of India

INR: Indian Rupee

US$ : US Dollar

Where applicable, numbers have been rounded off to the nearest whole number


EXCHANGE RATES

Year INR Equivalent of one US$

2004–05 44.81

2005–06 44.14

2006–07 45.14

2007–08 40.27

2008–09 46.14

2009–10 47.42

2010–11 45.62

2011–12 46.88

2012–13 54.31

2013–14 60.28

2014-15 61.06

2015-16 65.46

2016-17 67.09

Q1 2017-18 64.46

Q2 2017-18 64.29

Year INR Equivalent of one US$

2005 43.98

2006 45.18

2007 41.34

2008 43.62

2009 48.42

2010 45.72

2011 46.85

2012 53.46

2013 58.44

2014 61.03

2015 64.15

2016 67.21

H1 2017 65.73

Exchange Rates (Fiscal Year) Exchange Rates (Calendar Year)

Source: Reserve bank of India, Average for the year


DISCLAIMER

India Brand Equity Foundation (IBEF) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation

with IBEF.

All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced,

wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or

incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval

of IBEF.

This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the

information is accurate to the best of Aranca and IBEF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a

substitute for professional advice.

Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do

they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation.

Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any

reliance placed or guidance taken from any portion of this presentation.

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