India is likely to count among the top three life insurance and 15 general insurance markets in the world by 2020. However, private insurance companies are to be find a way to operate profitably.
Their cumulative losses are Rs 46,000-crore, says an industry report, prepared by industry chamber Ficci and The Boston Consulting Group (BCG).
To be released on Tuesday, it said: "The insurance industry is expected to reach $350-400 billion in premium income by 2020."
There are 24 general insurance and 23 life insurance companies in India. Before August 2000, the insurance sector was closed to private companies.
According to the report, titled 'India Insurance Turning 10, Going on 20', the total penetration of insurance (premium as percentage of GDP) has increased from 2.3 per cent in 2001 to 5.2 per cent in 2011.
In addition, there has been a vast increase in coverage. The number of life policies in force has increased nearly 12fold over the past decade and health insurance nearly 25fold, the report said.
The progress has been aided by the dramatic shift in the availability of products such as better term, Unit-linked, whole life, maximum Net Asset Value guarantee, auto assistance, auto pay per km insurance, disease management, wellness.
However, the industry is yet to find a [profitability solution. "Private life insurers accumulated losses of Rs 16,000 crore (Rs 160 billion) till March 2010. Similarly, the nonlife industry has cumulative underwriting losses of nearly Rs 30,000 crore," said Alpesh Shah, Partner & Director, BCG India, and author of the report.
The report said multiple elements contribute to this profitability challenge. For example, it said, insurers' fascination for top line growth at any cost has resulted in inefficient operating models and, hence, inferior operating expense ratios as compared to global benchmarks, in both life and nonlife.
The economics of various channels are challenged, be it agency model, bancassurance, brokers, auto dealers, corporate agency or inhouse salaried sales force.
The report said claims costs in the case of nonlife are very high because of third-party liability claims and fraud in the case of auto and health insurance.
There is limited focus on the end customer and the intermediary is being given a more prominent position by insurers, with insufficient focus on maximising value from existing customers, according to the report.
A bill to raise the foreign direct investment cap in private insurance from the current 26 per cent to 49 per cent is pending in Parliament. The report calls for relaxing the ownership norms.
