RECENT DEVELOPMENT IN INSURANCE COMPANY

INDIAN INSURANCE SECTOR

A well developed and evolved insurance sector is a boon for economic
development of a country. It provides long-term funds for infrastructure development and
concurrently strengthens the risk-taking ability of the country. Indias rapid rate of
economic growth over the past decade has been one of the most significant developments
in the global economy.
The

Indian

insurance

industry:

At

the

crossroads

of

development

The industry is on its way to development and a number of factors govern that growth.
Some of them are:
Significantly untapped latent potential: Indias insurance industry has witnessed
rapid growth during the last decade. Consequently, many foreign companies have
expressed their interest in investing in domestic insurance companies, despite the
Government of Indias regulation, which mandates that the foreign shareholding limit
is fixed at 26% for the life as well as non-life insurance sectors. How can this
potential be tapped efficiently? This report analyzes the issues of the industry and
suggests methods to overcome them.
Recent regulatory developments that govern the current market state: The
development of the insurance industry in India is likely to be critically dependent on
the nature and quality of regulation. Overall, the regulatory environment is favorable
and takes care that players maintain prudent underwriting standards, and reserve
valuation and investment practices. The primary objective for the current regulations
is to promote stability and fair play in the market place. Our report details some major
regulations by the IRDA as well as those concerning ULIPS, IPOs, among others.

What will drive market development in the Indian insurance industry?

There are certain factors that need to be considered by the Indian insurance industry to
ensure a seamless growth in business. Our report analyzes these factors in detail. Some of
these include:
Distribution channels: The effectiveness and cost of diverse distribution strategies of
different players is crucial in ensuring the success of players in the insurance business,
particularly in the retail lines of business.
Focus on financial inclusion: The approach to insurance must be in sync with the
evolving times. The mission of the insurance sector in India should be to extend the
insurance coverage over a larger section of the population and a wider segment of
activities.
Consumer needs and preferences: The growth in insurance industry has been spurred
by product innovation, vibrant distribution channels, coupled with targeted publicity
and promotional campaigns by the insurers. Innovation has come not only in the form
of benefits attached to the products, but also in the delivery mechanism through
various marketing tie-ups. All these efforts have brought insurance closer to the
customer as well as made it more relevant.
The un-insured customer
Given the lack of social security in India, in the event of disability, meager financial
savings and reliance on borrowings from unorganised lenders are the only options
available to a majority of the poor. While the developed countries provide social security
network to their citizens, Indias large population and low per capita income implies that
provision for any sort of social security system is bound to be a significant drain on the
countrys limited resources. Most customers in the target segment have low financial
literacy and are unable to view insurance as a risk mitigation tool. Low awareness levels
and lack of understanding of underlying benefits creates a barrier to purchase of
intangible assets. Further, the insurance companies have been focussing on reducing

losses and improving profitability rather than increasing cost effective distribution reach
to the lower strata. Poorly designed policies, lack of education, mis-selling through
inadequately trained agents and rejections during claims settlement has led to lack of trust
with this customer segment.
Distribution intermediary
It is imperative to use an effective distribution channel mix to reach out to the target
customer segment. Poor households live for the present rather than the future. Given their
fatalistic attitude, the concept of insurance is linked to expenditure, rather than risk cover.
Lack of adequate training to the distribution intermediary coupled with lack of
motivation, makes it difficult to explain the products to largely uneducated customers.
The feasibility of various products is also dependent on the availability of infrastructure,
which is often lacking or low in quality. Limited incentive on a low premium product
makes it difficult to cover operational costs of reaching out to the customers. Further,
delays in claim settlement and complicated formalities by the insurance companies also
pose as a road block. It is important for the intermediaries to be able to build personal
credibility with the client. Poor governance structure of the intermediaries also poses a
significant challenge in building a sustainable model between the intermediary and the
insurance companies.
Insurance company
Insurance companies are faced with challenges like high cost of customer acquisition
given the high operating and administrative cost involved in reaching remote areas vs.
value of premiums and unpredictable payment capacity of the segment. Moreover, given
some of the operating models of the insurance companies the cost of customer service is
also high. Regulatory compliance in terms of statutory requirements for customer
acquisition, documentation also forces a cost build up for the companies. The companies
do not have enough data on various subsegments and associated risks for analysis and
pricing. As a result, the claims ratio in the microinsurance segment is unpredictable.

Potential solutions to further increase penetration and scaling-up microinsurance

business
In this section, we have attempted to examine a range of regulatory, technological
and industry led change catalysts to address the challenges. The collected effect of these
change catalysts should support the industry in meeting the objective of scaling up the
micro insurance business. The combined impact of these drivers is far greater than by
themselves changes in the regulatory structure must be accompanied by industry led
innovation, which in turn must be enabled through the effective use of evolving
technology.
Industry led change/innovation
Ultimately, the mantle of increasing the penetration of microinsurance in India will
fall on the insurance industry. Enabled by favourable regulatory structures, the industry
will be empowered to innovate in low-cost customer acquisition, product designs and
pricing, customer service and in claims handling. While each insurance company will
develop its own strategies and capabilities, it will also have the opportunity to create
path-breaking collaborative models. The combination of internal and collaborative
models will be the catalyst for increased microinsurance penetration.