Analysis of Insurance Industry

8/10/2019 Analysis of Insurance Industry

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Analysis of InsuranceIndustry

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Table of Contents Life InsuranceMarket OverviewMarket Data Segmentation Outlook Five Forces Analysis

Leading Companies

Non-Life InsuranceMarket OverviewMarket Data Segmentation Outlook

Five Forces Analysis Leading Companies


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LIFE INSURANCE

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MARKET OVERVIEW

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Market definition

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The value of the life insurance market is shown in termsof gross premium incomes from mortality protection andretirement savings plans.

All currency conversions have been calculated usingconstant 2011 annual average exchange rates.

The insurance market depends on a variety of economicand non-economic factors and future performance isdifficult to predict.

The forecast given in this report is not based on acomplex economic model, but is intended as a roughguide to the direction in which the market is likely tomove.


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Market definition

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For the purposes of this report, Asia-Pacific comprisesAustralia, China, India, Indonesia, Japan, New Zealand,Singapore, South Korea, Taiwan, and Thailand.


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Market analysis

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The Indian life insurance market has seen dynamicgrowth in recent years, although a decline was seen in2011.

The market is, however, expected to return to very stronggrowth over the forecast period to 2016.

The Indian life insurance market had total gross writtenpremiums of $61.8 billion in 2011, representing acompound annual growth rate (CAGR) of 9.5% between2007 and 2011.

In comparison, the Chinese and Japanese markets grewwith CAGRs of 18.1% and 4.9% respectively, over thesame period, to reach respective values of $134.7 billionand $519.4 billion in 2011.


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Market analysis

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The life insurance segment was the market's mostlucrative in 2011, with total gross written premiums of$56 billion, equivalent to 90.6% of the market's overallvalue.

The pension/annuity segment contributed gross writtenpremiums of $5.8 billion in 2011, equating to 9.4% of themarket's aggregate value.

The performance of the market is forecast to accelerate,with an anticipated CAGR of 16% for the five-year period2011 - 2016, which is expected to drive the market to avalue of $129.9 billion by the end of 2016.


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Market analysis

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Comparatively, the Chinese and Japanese markets willgrow with CAGRs of 10.9% and 2.9% respectively, overthe same period, to reach respective values of $225.5billion and $598 billion in 2016.


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MARKET DATA

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Market value

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India life insurance market value: $ million, 200711


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MARKETSEGMENTATION

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Category segmentation

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Life insurance is the largest segment of the life insurancemarket in India, accounting for 90.6% of the market'stotal value.

The Pension/annuity segment accounts for theremaining 9.4% of the market.


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India life insurance market category segmentation: $million, 2011


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India life insurance market category segmentation: %share, by value, 2011


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Geography segmentation

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India accounts for 6.6% of the Asia-Pacific life insurancemarket value.

Japan accounts for a further 55.4% of the Asia-Pacificmarket.


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India life insurance market geography segmentation: $million, 2011


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India life insurance market geography segmentation: %share, by value, 2011


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Market share

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Life Insurance Corporation of India is the leading playerin the Indian life insurance market, generating a 68.5%share of the market's value.

ICICI-Prudential Life Insurance Co. Ltd. accounts for afurther 4.8% of the market.


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Market share

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India life insurance market share: % share, by value,2011


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Market share

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India life insurance market share: % share, by value,2011


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MARKET OUTLOOK

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Market value forecast

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In 2016, the Indian life insurance market is forecast tohave a value of $129.9 million, an increase of 110.2% since2011.

The compound annual growth rate of the market in theperiod 201116 is predicted to be 16%.


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India life insurance market value forecast: $ million,201116


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India life insurance market value forecast: $ million,201116


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FIVE FORCES

ANALYSIS

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FIVE FORCES ANALYSIS

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The life insurance market will be analyzed takinginsurance companies as players.

The key buyers will be taken as consumers (bothindividual as well as corporate), and ict manufacturers,software houses and reinsurance companies as the keysuppliers.


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Summary

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Forces driving competition in the life insurance marketin India, 2011


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Summary

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Robust growth within the Indian life insurance marketalleviates rivalry to an extent, reducing it to a moderatelevel.

Buyer power is moderate overall, as is the ability of newplayers in entering the market place with supplier powerremaining strong.

Despite savings and investments being among thealternative methods of insuring ones self, substitutespossess a weak force in the market, due to the expertiseand capital required for investment.

The demand for life insurance is determined by variousfactors: i.e. gross domestic product, average length of lifeexpectancy, inflation and interest rates.


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Summary

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Additionally, in developing countries, factors such asmarket structure, the presence of foreign investors andfinancial development of economies should be taken intoconsideration.

There are also various reasons for getting a life insurancepolicy.

Such a policy guarantees a replacement income for onesdependents in case of death or major illness.

Some types of life insurance create a cash value that, ifnot paid out as a death benefit, can be borrowed or

withdrawn on the owners request, which makes it animportant element of sound financial planning andinvestment.


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Summary

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Since most people consider paying their life insurancepolicy premiums a high priority, buying a cash-valuetype policy can create a kind of forced savings plan.

Various companies can also use group life insurance tocover their employees or corporate-owned life insurance(COLI).

COLI was originally purchased by companies to hedgeagainst the financial cost of losing key employees tounexpected death, the risk of recruiting and trainingreplacements of necessary or highly-trained personnel, or

to fund corporate obligations to redeem stock upon thedeath of an owner.


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Summary

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A point to consider in the current economic climate is thedrop in real income during 2009.

Such an event, coupled with a slow economic recoveryand the uncertainty regarding the Eurozone SovereignDebt crisis, may limit the demand for insurance

products, which are unlikely to be considered a priorityby households at present.


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Buyer power

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Drivers of buyer power in the life insurance market inIndia, 2011


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Buyer power

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Due to the nature of the market and importance of theproduct offered, there are many individual consumers,diminishing buyer power, as the impact of losing anindividual customer is rather marginal.

Large corporate clients have a lot more bargaining power

with insurance companies as they usually pay millions ofdollars a year in premiums and losing such high-margincorporate clients can negatively affect a player'srevenues.

This increases buyer power to some extent.

Customers in this market are not particularly loyal to onespecific company and are willing to shop around for thebest deal.


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Buyer power

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Online comparison sites allow customers to choose policiesthat meet their individual insurance needs, further boostingbuyer power.

However buyer power is weakened by the existence ofswitching costs, as for individuals, switching from one player

to another will often involve surrendering a policy early (anexception is where a term policy reaches its end and the buyerchooses a different company for their next policy).

The payout on a surrendered policy may be taxable, whereasthe payout on the death of the insured person is tax-free; alsoearly surrender of an index-linked plan may mean that the

policyholder misses out on some interest payments. Buyer power is assessed as moderate overall.


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Supplier power

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Drivers of supplier power in the life insurance marketin India, 2011


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Supplier power

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Such suppliers may have their own unique and patentedsystems.

This creates a disincentive for insurance companies toswitch suppliers as many employers are reluctant tospend the money training staff on new systems, which

increases supplier power. Despite many insurance companies maintaining their

own IT departments, there is little likelihood ofsignificant backward integration, which furtherstrengthens suppliers (although it is equally unlikely that

suppliers would attempt to integrate forwards intoinsurance services).


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Supplier power

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Life insurers also require the services of reinsurancecompanies, in order to reduce their own exposure toinsured risks.

Overall supplier power is strong in the life insurancemarket.


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New entrants

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Factors influencing the likelihood of new entrants inthe life insurance market in India, 2011


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New entrants

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It is believed that increasing affluence, aging population andlow penetration of insurance coverage at a time when themarket in industrialized countries is relatively saturated, willhelp transform the country's largely untapped life insurancemarket into one of the world's fastest growing over the next

five years, creating business opportunities for newcomers. There are public and private firms operating within India's

insurance market with state-owned Life Insurance Corp ofIndia (LIC) still having a stranglehold with a market share ofover 68%.

However, private players have moved aggressively, chasing

for business, after being allowed to compete with LIC in 2000.


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New entrants

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Overseas insurers where allowed to operate with thepassing of the Insurance Regulatory and DevelopmentAuthority (IRDA) Act in 1999.

However, foreign direct investment in private insurancecompanies is limited to 26% in India.

Barriers to entry into life insurance market are oftendescribed as low; however, new players entering themarket must decide whether to initially enter on a largeor small scale, with each holding varying benefits andrisks.

The opportunity to enter the market on a small scaleboosts the threat of new entrants.


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New entrants

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Entry into the market for well developed insurancecompanies is capital intensive and players need to ensuresome level of integration if market entry is to be asuccess.

Leading incumbents have strong reputations and

consumer recognition and they usually offer a vast rangeof services with which new entrants must compete.

Most of the threat from new entrants lies within theinsurance industry itself.

Repeat business is difficult to attain in this market, since

consumers will typically replace their life insurancepolicies at infrequent intervals only.


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New entrants

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This means that finding new custom is vital, and accessto distribution networks is a key criterion for successfulmarket entry.

In India, the former state monopoly, Life InsuranceCorporation has a network of more than 2,000 branches,

constituting a distribution network that newcomers mayfind hard to match.

Some companies have carved out niche areas in whichthey underwrite insurance.

These insurance companies are fearful of being squeezed

out by the big players. Another threat for many insurance companies is other

financial services companies entering the market.


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New entrants

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Indeed some banks and investment banks have started tooffer insurance products, while certain financialcommitments, such as mortgages, have life policiesattached to them.

In some countries however, regulations are in place to

prevent banks and other financial firms from entering themarket.

Government regulation is generally stringent, withInsurance Regulatory and Development Authority(IRDA) imposing capital requirements of INR 1,000

million ($15.3 million) minimum for new entrants,although, this could rise to between INR 2,000 million($30.7 million) and INR 2,500 million ($38.4 million).


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New entrants

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The likelihood of new entrants is assessed as moderateoverall.


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Threat of substitutes

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Factors influencing the threat of substitutes in the lifeinsurance market in India, 2011


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There are a number of alternatives to taking out an insurancepolicy, i.e. in the form of other financial products, such assavings and investments.

Savings and investments include deposits, mutual funds anddirect investments in equities and bonds.

Wills are also a way of accounting for risk and protectingfamily members after death.

These options could be a cheaper alternative to life insurance,but savings do not guarantee protection in the same way aslife insurance, which reduces the benefit of this option.

Consumers can adopt risk management strategies, such as

'Self-Insurance', whereby an eligible risk is retained, but acalculated amount of money is set aside.


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An organization could choose to operate its own 'captive'structure and form its own insurance companysubsidiary.

Although these are viable substitutes they require acertain amount of expertise and capital.

The threat of substitutes with respect to the life insurancemarket is therefore assessed as weak.


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Degree of rivalry

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Drivers of degree of rivalry in the life insurance marketin India, 2011


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Degree of rivalry

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Because of the homogenous nature of the leading playersinsurance has become more like a commodity - an area inwhich an insurance company with a low cost structure, greaterefficiency and better customer service will beat outcompetitors.

Entry barriers, though not insignificant, are lower than exitbarriers.

For example, the regulatory system, through the imposition ofsuch measures as capital adequacy, is designed to preventinsurers from going out of business, as this would be to thedetriment of policyholders.

When exit barriers in a market are high, players may weatherpoor market conditions where necessary - but this tends toboost rivalry.


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Degree of rivalry

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Insurance companies also use higher investment returnsand a variety of insurance investment products to try tolure in customers.

This leads to greater consolidation within the market. Larger companies prefer to take over or merge with other

companies rather than spend the money to market andadvertise to people.

Overall, there is moderate rivalry in the market.


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LEADING COMPANIES

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HDFC Standard Life InsuranceCompany Limited

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HDFC Standard Life Insurance Company Limited (HDFCLife), a private Indian life insurance company, is the resultof a joint venture between Housing Development

Corporation Limited (HDFC Ltd) and Standard Life plc. HDFC Ltd holds 72.37% equity in the company, with

Standard Life plc holding 26%. HDFC life offers protection, pension, savings, investment

and health products.

At present, the companys product portfolio consists of 25retail, and nine group products, as well as 10 optional riderbenefits.


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HDFC Standard Life InsuranceCompany Limited

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The company operates around 500 branches in India,covering over 900 cities and towns.


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Key Metrics

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The company recorded revenues of INR 104,272.8 million(USD 2,225.8 million) in FY 2012, a decrease of 7.1%when compared to the previous year.

The companys net profit was INR 3,729.2 million (USD79.6 million) in FY 2012, compared to a net profit of INR669.8 million (USD 14.3 million) in the preceding year.


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ICICI Bank Limited

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Its international banking operations are primarilyfocused on persons of Indian origin and Indianbusinesses.

ICICI's international branches and banking subsidiariestake deposits, raise borrowings and make loans primarilyto Indian companies for their overseas operations as wellas for their foreign currency requirements in India.

They also engage in advisory and syndication activitiesfor fund-raising by Indian companies and their overseasoperations.


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ICICI Bank Limited

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It currently has banking subsidiaries in the UK, Canada andRussia, branches in Singapore, Dubai, Sri Lanka, HongKong, Qatar, the US and Bahrain and representative officesin China, the United Arab Emirates, Bangladesh, SouthAfrica, Malaysia, Thailand and Indonesia.

ICICI conducts its operations through eight segments:treasury, wholesale banking, life insurance, retail banking,other banking business, general insurance, venture fundmanagement and others.

Treasury includes the entire investment portfolio of the

bank, ICICI eco-net internet and technology fund, ICICIequity fund, ICICI emerging sectors fund, ICICI strategicinvestments fund and ICICI venture value fund.


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ICICI Bank Limited

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Additionally, treasury operations include the maintenanceand management of regulatory reserves, proprietarytrading in equity and fixed income and a range of foreignexchange and derivatives products and services forcorporate customers, such as forward contracts and interest

rate and currency swaps. Wholesale banking includes all advances to trusts,

partnership firms, companies and statutory bodies whichare not included under retail banking.

Life insurance is provided through subsidiary, ICICI

Prudential Life Insurance Company. Life insurance business primarily comprises unit-linked life

insurance and pension products.


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ICICI Bank Limited

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Retail banking comprises the retail liabilities, retail assets andsmall enterprises businesses.

Consumer banking provides deposit and loan products toretail customers, credit cards, private banking, distribution ofthird party investment products and other fee-based products

and services, as well as issuance of unsecured redeemablebonds.

ICICI offers different types of loans including home loans,automobile loans, commercial business loans (includingprimarily commercial vehicle loans), and personal loans, loansagainst time deposits and loans against securities to its retail

customers. ICICI had a network of 2,501 branches and 5,665 ATMs in

India (August 2010).


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ICICI Bank Limited

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The other banking business includes hire purchase andleasing operations, and other items not attributable toany particular business segment.

Furthermore, it also includes the bank's bankingsubsidiaries i.e. ICICI Bank UK PLC, ICICI Bank Canada,and ICICI Bank Eurasia LLC.

General insurance is provided through ICICI LombardGeneral Insurance Company range of non-life insuranceproducts, including health, overseas travel, studentmedical, motor, and home insurance.

The venture fund management segment representsresults of ICICI Venture Funds Management CompanyLimited (ICICI Venture).


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ICICI Bank Limited

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ICICI Venture is one of the largest private equity firms inIndia with funds under management of $2 billion.

The other segment includes the following: ICICI HomeFinance Company Limited, ICICI International Limited,ICICI Securities Primary Dealership Limited, ICICI

Securities Limited, ICICI Securities Holdings Inc., ICICISecurities Inc., ICICI Prudential Asset ManagementCompany Limited, ICICI Prudential Trust Limited, ICICIInvestment Management Company Limited, ICICITrusteeship Services Limited, TCW/ICICI Investment

Partners LLC., ICICI Kinfra Limited, ICICI West BengalInfrastructure Development Corporation Limited,Loyalty Solutions & Research Limited,


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ICICI Bank Limited

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(CONTD) I-Ven Biotech Limited and ICICI PrudentialPension Funds Management Company Limited (witheffect from June 2009). ICICI Prudential AssetManagement Company manages the ICICI PrudentialMutual Fund, which was among the top three mutual

funds in India in terms of average funds undermanagement in March 2010, with a market share of10.8%.

ICICI Securities Limited and ICICI Securities PrimaryDealership Limited are engaged in equity underwriting

and brokerage and primary dealership in governmentsecurities, respectively.


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ICICI Bank Limited

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ICICI Securities owns icicidirect.com, a leading onlinebrokerage platform.

ICICI Securities Limited has a subsidiary in the US, ICICISecurities Holdings Inc., which has an operatingsubsidiary in the US, ICICI Securities Inc., engaged in

brokerage services.


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ICICI Bank Limited: key financials ($)


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ICICI Bank Limited: key financials (Rs.)


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ICICI Bank Limited: key financial ratios


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ICICI Bank Limited: revenues & profitability


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ICICI Bank Limited: assets & liabilities


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LIC of India

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The Life Insurance Corporation of India (LIC or thegroup) is primarily a life insurance service provider.

LIC operates through five business segments: individualassurance, general annuities, pensions, unit linkedbusiness, and group insurance business.

However, the group presents results under four businesssegments: individual assurance, unit linked business,group schemes, and individual pension.

The group's products can be classified into insuranceplans, pension plans, unit plans, special plans, and group

plans. Insurance plans cater to different needs of individuals.


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LIC of India

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The Life Insurance Corporation of India (LIC or thegroup) is primarily a life insurance service provider.

LIC operates through five business segments: individualassurance, general annuities, pensions, unit linkedbusiness, and group insurance business.

However, the group presents results under four businesssegments: individual assurance, unit linked business,group schemes, and individual pension.

The group's products can be classified into insuranceplans, pension plans, unit plans, special plans, and group

plans. Insurance plans cater to different needs of individuals.


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LIC of India

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The group also offers group insurance schemes, whichserve as life insurance protection for groups of people.

Such schemes cater for the needs of employers,associations, societies.


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The group recorded revenues of INR2,992,726.3 million(approximately $63,883.5 million) during the financialyear (FY) ended March 2011, an increase of 0.2% overFY2010.

The net profit was INR 2,640,295.1 million

(approximately $56,360.4 million) in FY2011, a decreaseof 2.3% over FY2010.


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State Bank of India

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State Bank of India (SBI) is the largest commercial bankin India, offering services such as traditional banking,trading services, international banking and treasuryoperations.

The company is the main banking arm of State Bank

Group, which includes seven other banks and offersadditional services such as mutual funds, gilts andinsurance.

The Reserve Bank of India (central bank of India) holdsmore than half of SBI's equity capital.

The company primarily operates through three businessunits, retail banking, wholesale banking, and treasury.


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State Bank of India

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The retail banking comprises the bank's national bankinggroup (NBG), which consists of business groups,personal banking, small & medium enterprise (SME),government banking.

Through the personal banking division, SBI offers

savings deposits, current deposits, term deposits,recurring deposits, home loans, auto loans and educationloans.

SME unit serves the financial needs of small & mediumenterprises across the country.


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State Bank of India

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(CONTD) automated bulk NEFT, ECS and RTGS paymentswith reconciliation support etc.

Project finance & leasing SBU focuses on funding coreprojects like power, telecom, roads, ports, airports, SEZ andothers.

It also handles non-infrastructure projects with certainceilings on minimum project costs. Stressed assets management group (SAMG) was initially set

up to take over all non performing assets' (NPAs) to resolveNPAs.

100 stressed assets resolution centers (SARCs) has beenopened across the country without standings up to INR10million in small and medium (SME) and personal segments.


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State Bank of India

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The mid corporate group (MCG) has been serving theneeds of mid corporate units through relationshipmanagement and quicker credit processing.

695 new mid corporate clients were added to the MCGduring the year 2007.

Substantial business in the form of initial publicofferings, private equity, debt syndication, foreigncurrency loans, overseas acquisitions, externalcommercial borrowings has been arranged for MCGclients through SBICAPS and foreign offices.

A separate department, precious metals department, hasbeen created at the bank's corporate center for thepurpose of boosting the gold banking business.


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State Bank of India

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The bank launched retail sale of gold coins which is nowavailable at 250 branches across the country.

Treasury segment is a part of global markets. In keeping with its integrated approach to all treasury

activities in various markets in different time zones i.e.,

forex, interest rates, bullion, equity and alternative assets,the bank redesignated its treasury operations into 'globalmarkets'.

The bank diversified its trading activity to equity andmutual fund portfolio to en cash the opportunities

available through the buoyant capital markets during theyear 2007.


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State Bank of India

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International banking has a network of 84 overseasoffices spread over 32 countries.

The international banking services include corporatelending, loan syndications, merchant banking, handlingletters of credit and guarantees, short-term financing,

collection of clean and documentary credits andremittances.

The bank caters to non-resident Indians through facilitiessuch as NRI accounts, deposit accounts, Indiamillennium deposits, remittances to India, home loans

and miscellaneous.


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State Bank of India

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The bank offers a range of services such as SBI foreigntravel cards, broking services, ATM services, internetbanking, bill payments, gift checks, safe deposit lockersand foreign inward remittances.

The bank has a factoring services arm under the name

SBI Factors and Commercial Services and Global TradeFinance.

Through its subsidiary, SBI Capital Markets, it offersmerchant banking services throughout the country.

SBI offers life insurance in association with BNP Paribas

through its subsidiary, SBI Life Insurance Company.


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State Bank of India

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The company follows a multi-distribution modelcomprising banc assurance, retail agency andinstitutional alliances and group corporate channels fordistribution of Insurance products.


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The company recorded revenues of $20,753 million in thefiscal year ending March 2011, an increase of 13.1%compared to fiscal 2010.

Its net income was $1,764 million in fiscal 2011, comparedto a net income of $1,957 million in the preceding year.


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State Bank of India: key financials ($)


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State Bank of India: key financials (Rs.)


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State Bank of India: key financial ratios


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State Bank of India: revenues & profitability


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State Bank of India: assets & liabilities


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NON-LIFE INSURANCE

IN INDIA

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MARKET OVERVIEW

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Market definition

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The non-life insurance market consists of the general insurancemarket segmented into motor, property, liability and otherinsurance.

The other segment is made up of non-life insurance productsincluding health, travel, and accident cover amongst others.

The value of the non-life insurance market is shown in termsof gross premium incomes.

Any currency conversions used in the report have beencalculated using constant 2011 annual average exchange rates.

The non-life insurance market depends on a variety ofeconomic and non-economic factors and future performance is

difficult to predict.


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Market definition

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The forecast given in this report is intended as a roughguide to the direction in which the market is likely tomove.

This forecast is based on a correlation between pastmarket growth and the growth of base drivers, such as

population numbers, GDP growth, and long-terminterest rates.

For the purposes of this report, Asia-Pacific comprisesAustralia, China, India, Indonesia, Japan, New Zealand,Singapore, South Korea, Taiwan, and Thailand.


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Market analysis

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After experiencing strong double digit growth throughoutthe 2007-2011 period, the Indian non-life insurance marketis forecast to continue its strong growth, albeit at amarginally accelerated rate, during 2011-2016.

The Indian non-life insurance market had total gross

written premiums of $12.5 billion in 2011, representing acompound annual growth rate (CAGR) of 17.6% between2007 and 2011.

In comparison, the Chinese market increased with a CAGRof 21.7%, and the Japanese market declined with acompound annual rate of change (CARC) of -0.7%, over the

same period, to reach respective values of $87.4 billion and$129.4 billion in 2011.


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Market analysis

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The other insurance segment was the market's mostlucrative in 2011, with total gross written premiums of$5.8 billion, equivalent to 46.6% of the market's overallvalue.

The motor segment contributed gross written premiums

of $5.8 billion in 2011, equating to 46.4% of the market'saggregate value.

The performance of the market is forecast to accelerate,with an anticipated CAGR of 17.9% for the five-yearperiod 2011 - 2016, which is expected to drive the market

to a value of $28.3 billion by the end of 2016.


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Market analysis

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Comparatively, the Chinese and Japanese markets willgrow with CAGRs of 14.4% and 0.7% respectively, overthe same period, to reach respective values of $171.3billion and $134.1 billion in 2016.


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MARKET DATA

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Market value

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The Indian non-life insurance market grew by 23.2% in2011 to reach a value of $12.5 billion.

The compound annual growth rate of the market in theperiod 200711 was 17.6%.


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Market value

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India non-life insurance market value: $ billion, 200711


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Other insurance is the largest segment of the non-lifeinsurance market in India, accounting for 46.6% of themarket's total value.

The Motor segment accounts for a further 46.4% of themarket.


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India nonlife insurance market category segmentation:$ billion, 2011


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India nonlife insurance market category segmentation:% share, by value, 2011


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India accounts for 3.4% of the Asia-Pacific non-lifeinsurance market value.

Japan accounts for a further 35.3% of the Asia-Pacificmarket.


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India nonlife insurance market geographysegmentation: $ billion, 2011


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India nonlife insurance market geographysegmentation: % share, by value, 2011


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Market share

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New India Assurance Co. Ltd. is the leading player in theIndian non-life insurance market, generating a 14.3%share of the market's value.

United India Insurance Co. Ltd. accounts for a further10.9% of the market.


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Market share

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India non-life insurance market share: % share, byvalue, 2011


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Market share

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India non-life insurance market share: % share, byvalue, 2011


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MARKET OUTLOOK

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In 2016, the Indian non-life insurance market is forecastto have a value of $28.3 billion, an increase of 126.4%since 2011.

The compound annual growth rate of the market in theperiod 201116 is predicted to be 17.9%.


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India non-life insurance market value forecast: $billion, 201116


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India non-life insurance market value forecast: $billion, 201116


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FIVE FORCESANALYSIS

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FIVE FORCES ANALYSIS

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The non-life insurance market will be analyzed takinginsurance firms as players.

The key buyers will be taken as individual and corporateconsumers, and information and communicationtechnology manufacturers as the key suppliers.


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Summary

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The non-life insurance market is dominated by largercompanies, which sell more or less the same productsleading to significant price sensitivity.

A high level of individual consumers in the insurancesector diminishes buyer power, as the impact of losing

one customer is negligible. Insurance is of high importance to customers and, in

many cases, a legal requirement. Consumer loyalty in the sector is low with many willing

to shop around for the best deal, prices and cover.

Suppliers in this market include ICT manufacturers asspecialized computer systems are needed for certaininsurance companies.


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Summary

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Although insurance firms will maintain their own ITdepartments, there is little likelihood of significantbackward integration.

New entrants must decide whether to initially enter on asmall or large scale, with each holding varying benefits

and risks. Government regulation of the industry is fairly high

which can act as a deterrent to prospective new entrants. There are no real substitutes for insurance products, as

certain policies are legal requirements in many countries.

There do exist, however, a number of alternatives totaking out a policy, although they require a certaindegree of expertise and capital.


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Buyer power

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Drivers of buyer power in the non-life insurancemarket in India, 2011


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Buyer power

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A high level of individual consumers in the insurancesector diminishes buyer power as the impact of losingone customer is negligible.

However, business insurance is essential for companiesto protect against risks, and the loss of core business

customers has a far more substantial impact on insurancecompanies. Insurance is of high importance to the customer,

particularly forms such as car insurance which oftenconstitute a legal requirement.

Where this is not the case, coverage is usually patchier.


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Buyer power

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Given the non-tangible nature of insurance coverage someindividuals are tempted to reject the safeguards it can offer,enjoying the more immediate financial savings instead.

Indeed, this is sometimes even the case where there arelegal ramifications.

Consumer loyalty in the sector is low. Customers arewilling to shop around for the best deal, cover and pricesprovided by insurance firms.

The advent of online technology such as comparisonwebsites and blogging has strengthened buyer power asconsumers with access to the internet are now able to

compare and contrast prices, services and experiencesamongst themselves.


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Buyer power

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Insurance brokers represent a further option, standing asconsultants in the sector who are able to apply theirexpertise to secure the appropriate package for acustomer.

Whilst incurring extra costs initially, this can bring long

term savings, empowering a more fluid buyer base. Overall, buyer power is assessed as moderate as it isoften constrained by legal frameworks.


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Supplier power

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Drivers of supplier power in the non-life insurancemarket in India, 2011


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New entrants

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Factors influencing the likelihood of new entrants inthe non-life insurance market in India, 2011


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New entrants

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Sectors, such as non-life insurance, which are capital,research and/or advertising intensive often require largescale operations to sustain efficiency.

New entrants must decide whether to initially enter on asmall or large scale, with each holding varying benefits andrisks.

The opportunity to enter the market on a small scaledeepens the threat of new entrants however these entrantsoften require highly specialized expertise, systems andknowledge.

Entry to the market as a well-developed insurance company

is capital intensive and players need to ensure some level ofintegration if entry to the market is to be a success.


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New entrants

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Government regulation of the sector is fairly high,although this has loosened since the industry was fullyderegulated in the 1990s.

As a result of this, foreign investment in the Indianinsurance industry was permitted.

The body responsible for regulating the industry in Indiais the Insurance Regulation and Development Authority(IRDA).

Overall the likelihood of new entrants is assessed asmoderate.


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Factors influencing the threat of substitutes in the non-life insurance market in India, 2011


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There are no real substitutes for insurance products, withcertain policies often being a legal requirement in manycountries.

A number of alternatives to taking out a policy do exist. Consumers can adopt risk management strategies such

as Self-Insurance whereby an eligible risk is retained,but a calculated amount of money is set aside tocompensate for the potential future loss.

Alternatively, an organization could choose to operate itsown captive structure, and form its own insurancesubsidiary to finance its retained losses in a formalstructure.


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Although these are viable substitutes they require acertain amount of expertise and capital. Of course a consumer could choose not to take out a

policy at all, although in many cases this is illegal. Equally, buying insurance is often a mandatory condition

of obtaining a mortgage and therefore essential to mostpeople. The threat of substitutes with respect to the non-life

insurance market is therefore assessed as weak.


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Degree of rivalry

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Drivers of degree of rivalry in the non-life insurancemarket in India, 2011


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Degree of rivalry

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After a period of nationalization, the Indian non-lifeinsurance sector was opened up following the creation ofthe IRDA.

Players offer similar services with companies sellingmore or less the same products leading to significant

price sensitivity and low margins. This is countered to some degree, as many are involvedin banking and management services and often pursue anumber of insurance lines.

Nonetheless, some companies will not expand intocertain types of insurance.


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LEADING COMPANIES

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National Insurance Company

Limited

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National Insurance Company (NIC) is a public sectorinsurance company engaged in the provision of insuranceservices.

The company offers insurance services including fire

insurance, marine insurance, miscellaneous insurance, ruralinsurance, commercial risk insurance and industrial riskinsurance.

The company offers its services to the banking, telecom,aviation, shipping, information technology, power, oil andenergy, agronomy, plantations, foreign trade, healthcare, tea,automobile, education, environment and space researchsectors.


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National Insurance Company

Limited

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The company primarily operates in India, where it isheadquartered in Kolkata, and employs around 15,600people.


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As a private entity, National Insurance CompanyLimited is not legally obliged to publish its financialresults.


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New India Assurance Co. Ltd.

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Established in 1919 and headquartered in Mumbai, theNew India Assurance Company provides insuranceproducts and services throughout India.

The company provides a range of personal insuranceproducts comprising health, life, motor, and property

cover. New India also offers industrial insurance products,including fire and marine cover, commercial insurance(consisting of marine, aviation, and property), liabilityinsurance (covering public, third party, and productliability).

Other services the company offers include social andcredit insurance, and reinsurance products.


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As a private entity, New India Assurance is not legallyobliged to release its financial results.


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The Oriental Insurance

Company Ltd.

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Oriental Insurance, a wholly owned subsidiary of theOriental Government Security Life Assurance Company,provides a range of general insurance services in theurban and rural areas of India.

The company designs insurance coverage for largeprojects including power plants, and petrochemical, steeland chemical plants.

Oriental Insurance operates 30 regional offices and over900 operating offices in cities of India.

It also has overseas operations in Nepal, Kuwait andDubai.


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Key Metrics

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As a private entity, the Oriental Insurance Company isnot legally obliged to release its financial results.

However, the company recorded revenues ofINR46,115.8 million (approximately $984.4 million) in thefiscal year ended March 2011.

Its net profit was INR546.1 million (approximately $11.7million) in fiscal 2011.

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United India Insurance Co. Ltd.

Incorporated in 1938 and headquartered in Chennai,United India Insurance Company Limited operates as ageneral insurance company in India.

It offers a range of personal and commercial generalinsurance products, including building and contents

insurance, motor insurance, accident cover, travelinsurance, and health insurance.

Analysis of Insurance Industry

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