General Insurance Report 2008-09

8/8/2019 General Insurance Report 2008-09

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General Insurance ReportFindings from IRDA report 2008-09

AN AMICUS ADVISORY KNOWLEDGE MANAGEMENT REPORT


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India 15th

largest Insurance market in India

India among one of the most sought out market for worlds leading companies iscurrently at fifteenth place as compared to other countries closely following

Ireland and Australia.

Interestingly India happens to be 5th

largest Asian markets too. Behemoths from

world over are eying Indian insurance pie and looking for suitable Joint venture

partners and timings to enter Indian Insurance Industry.

Insurance Industry growth is poised to grow towards new heights in worlds 2nd

large populous country with majority of population below 35 years of age

group.

A Roaring Tiger

As per Swiss Re reports Indian

Insurance Industry rose from

19th

place in year 2005 to 15th

Place in 2007.

The fast paced growth can be

attributed to majorly the

opening up of Insurance

industry and demographic

conditions of the country.

Currently with 45 players

certified to underwrite

insurance business in India

Regulators are trying to manage

the growth on strong pillars of

financial stability and

innovation.

After opening up of market India has become worlds 15th largest insurance market and with

the growing pace it is poised to give company to top 10 Insurance markets of the world.

The small share of 1.34%* in worlds insurance industry is a clear sign of thepotential India posses for growth. This opportunity has led the Insurance

biggies both from Life and health as well as Property and casualty insurance

to make India part of their 2020 strategy.

Slowly the growth of Health insurance segment has motivated many leadinghealth insurance companies to set up shops in India. A number of foreign

companies, including Blue cross Blue shield Association, the United Health

group, Discovery Health, Cigna Corporation and Aetna, are interested in

entering India.

Currently there are total 44 countries operating in Indian Insurance market

leaving SBI General Insurance company granted license recently taking total

count to 45. Shriram GICL, Bharti AXA and Rheja QBE were granted lisence to

underwrite risk in general insurance sphere while Canara HSBC, Oriental Bank

of Commerce, Aegon Religare, DLF Peramerica and Star Union Dai-ichi were

given a go-ahead to sell life insurance in India. The breakup of the entities is

shown below.

Type of business Public Private Total

Life Insurance 1 21 22

General Insurance 6 15 21

Re-insurance 1 0 1

Total 8 36 44


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GROWTH TRENDS OF INSURANCE INDUSTRY IN INDIA

Despite the impact of global financial crisis on Indian economy Insurance industry managed to grow by 10.18% over

last year. This comprises a growth in life insurance premium from Rs. 20135141 lakh in FY 2007-08 to Rs. 22179126

lakhs in FY 2008-09 at the same time General insurance industry(Includes Standalone Health Insurance companies)

grew from Rs 2799172 lakh in FY 207-08 to Rs 3091084ilakh in FY 2008-09.

Performance in the first half of 2009-10

The insurance industry has registered a growth of 11.35 per cent in premium collections in the first six

months of this financial year at Rs.55866.54 crore as compared to Rs.50171.09 crore during the correspondingperiod of last year. The life insurance sector has grown by around 13 per cent while the onlife segment witnessed a

growth of around 8 per cent in the first-half of 2009-10.

First year premium income of life insurance players stood at Rs.39046.59 crore in the April-September period as

against Rs.34599.37 crore in the corresponding period of last year. The total premium underwritten by the general

insurance companies in the same period was Rs.16819.95 crore as compared to Rs.15571.72 crore in the year-ago

period.

Over past 5 years the Industry has grown at a

very fast pace and the growth is slowly

maturing.

Still General Insurance Industry or more

popularly called Non-life insurance industry has

not been able to match the pace with the

overall Industry growth.

The widening gap can be clearly seen in the

graph. This can be attributed to various reasonslike low penetration levels i.e. Premium of GI is

only around .9% of GDP against around 5% of

Life insurance.

Maturing Market or Lack of Innovation

The growth rate of Insurance Industry in India

has started to slow down and as per the

regulator the overall growth will limit to 10-12%

only. Despite very low penetration and densitylevel the growth has started slowing down. Is it

that the Indian Insurance Industry has started to

mature or its just lack of innovation in new

product designing and untapped portfolios like

crop, weather and rural products?


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PROFILE: GENERAL INSURANCE INDUSTRY

With total twenty one general insurers and one national re-insurer Insurance industry managed to grow just above

10 percent during FY 2008-09, despite the international crisis.

Players in General Insurance Industry

After recent grant of lisence to SBI* there are now 22 general insurance companies and one National re-insurer inIndia. The six public general insurance companies include AIC and ECGC, on the other hand 16 private insurance

companies include two standalone health insurance companies namely Star Allied Health Insurance comp. and

Apollo DKV.

GeneralInsurers 2005 2006 2007 2008 2009

Public 6 6 6 6 6

Private 8 9 10 15 16*

Reinsurer 1 1 1 1 1

Total 15 16 17 22 23

Indian General Insurance Market: One of the most attractive markets

Indian general insurance market is one of the most attractive insurance markets with companies queing for entry its

expected that there will be more standalone health insurance players with Max Bupa already gearing up to start

operations.

Total gross premium collected by General insurance

companies* rose from Rs 20359 cr. in FY 2005-06 to Rs

30910 cr. in FY 2008-09. The growth can be attributed

mainly to growing Motor and Health Insurancepremium.

*Premium figures include premium incomes of standalone healthinsurers while excludes AIC & ECGC

Total no. of policies sold by General insurance

companies this year was 670.60 lakh up from 572.5 lakh

policies last year. Although the YoY growth rate has

declined as compared to last year.

Year on year growth of no. of policies sold declinedfrom 22.69% last year to 17.13% this FY.


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PORTFOLIO PROFILE

Majority of general insurance is derived by four classes of businesses i.e. Fire, Marine Motor and Health. The growth

rate of these portfolios decides the overall growth of general insurance industry in India. This section discusses the

performance and growth of these portfolios.

ii

BIG OPPORTUNITY OR JUST A TREND

Interestingly worlds Insurance premium income

shows general insurance premiums contributing

to around 40% of Total Insurance premiumcollected (Total Insurance premium = Life+ Health+

P&C)

Against that trend in India is very different and

shows average contribution of GI to total

premium Income only 13%.

Except fire all other class of businesses managed

to grow decently with Health and Motor being

major growth drivers.

Miscellaneous other businesses too showed a

decent growth rate with growing awareness of

different class of insurance covers among India.

This includes Aviation, liability, rural, crop and

class of businesses.

*Health premium here includes premium income of Starhealth and Apollo DKV

Just within last 4 years Private companies have

taken over the market share from 26% to 41%.

Very soon we might see their market share out

growing those of their public sector

counterparts.

This growth could be attributed to theinnovative products these players have been

able to introduce in the market.


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Major players in the market

While in public sector New India Assurance has managed to remain

on top even after loosing on the market share. United India has

come up one rank at number three leaving behind oriental

insurance and is chasing National insurance very closely for the

second position.

Among private insurers ICICI Lombard still enjoys its leadership

position with 11.2% market share. Over last three years ICICIs

market share has shown a declining trend with Iffco Tokio,

Cholamandalam and HDFC Ergo growing faster than market

average. It will be interesting to see how ICICI Lombard responds to

the current threat to its maket leadership.

Graph below shows the market share of general insurancecompanies(excluding two standalone health insurers).

Changing Market Dynamics

The market has changed dramatically over

past four to five years. With a continuous

decline in premium earning of fire portfolio

after detariffing Motor and health has turned

out to be largest and fastest growing

segments in industry.

Health premium which used to be just 66% of

fire premium now happens to be twice as big

as total fire portfolio and the trend is

supposed to continue.

Today Motor and Health collectively

constitute to 65% of total general insurance

market while rest 35% is shared by Fire,

Marine and miscellaneous at 11%, 6% and

18% respectively.

It is expected that miscellaneous group

constituting businesses like liability, crop and

aviation to name a few will also be a major

driving force due to the untapped market and

new products being introduced in this space.


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Bajaj Allianz general insurance company is the market leader in motor business followed by ICICI Lombard and

Reliance gneral insurance.

Health

UNDERWRITING EXPERIENCE

It seems that overall general insurance industry has been pushing too hard to gain market share. In the pursuit of this

quest they seems to be struggling with underwriting results. With no company making underwriting profits in last

couple of years its very much evident that market competition is taking its tool on the pricing strategy.

With the booming economy on their side till last year, most general insurers were able to show profits till last year

but this has changed dramatically with economic slowdown and tumbling stock markets.

This year in total eight companies reported net loss. The list includes National insurance and Oriental insurance

company among public companies while Reliance general insurance, HDFC Ergo, Future Generalie, Universal sompo,

Bharti Axa and Sriram General among private players.

Major Setbacks over last years financial results

The nature of insurance business is such that one can never expect an insurance company to make profits every year.

The major changes over the last year clearly show the impact of tumbling markets over insurance industry.

Overall health insurance market grew by 31% this

FY with its size growing three times in just 4 years.

With matching growth rate of both publiccompanies and private companies at around 24%

the portfolio shows most encouraging trends over

past few years.

With standalone Health insurers coming in picture

there has been lot of innovative products coming

out of the stable of these companies.

While newest entrant Apollo DKV has most

diversified product portfolio it has not been able

to match the growth with counterpart Star health.

.Interesting to know that market share of

standalone health insurers has grown to aprox

8.5% showing encouraging signs for global players

to enter into the market.

Total Premium income from health insurance

portfolio for FY 2008-09 was Rs. 664701 cr. This

includes premium of Rs.386347 lakhs, Rs. 222454

lakh and Rs. 55900 lakh underwritten by Public

sector companies, private companies and

standalone insurers respectively.


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National insurance company reported a Net loss of Rs. 14921 lakh against a Net profit of Rs. 16343 lakh last year,

situation was not very different with Oriental insurance company with reported Net loss for this year amounting to

Rs. 5266 lakh over Net profit of Rs. 930 lakh the preceding year. Net profit for others saw a steep decline.

Among the private players HDFC Ergo and Future Generalie showed increasing trend in Net loss while Net profit

figures of ICICI Lombard and Tata AIG were impacted largely. Underwriting loss for ICICI Lombard grew four times

this year which can be attributed to few major claims happening last year.

On the other hand despite aproximately three hundred percent increase in underwriting losses Bajaj Allianz managed

to show balancing Net Profit compared to last year. Encouragingly Royalsundaram and Reliance are the two players

shown positive results over last year. Royalsundarams net profit increased by over 20% from Rs. 471 lakh to Rs.566

lakh. Reliance General Insurance has shown major improvement as compared to their last years balance sheet .

Notonly the company managed to cut its underwriting loss by one third compared to last year the Net loss reported

this year has also reduced by two third. Considerably this is in view of no major loss in market share over preceding

year.

Among standalone health insurers Star health managed to report a Net profit of Rs. 124 lakh while results for Apollo

DKV were not so encouraging.

Results for specialised public sector insurers were encouraging. Against the overall market trend AIC and ECGC both

showed net profits of Rs. 23261 lakh and Rs. 28339 lakh respectively.

With Mega claims like the one at Indian Oil refinary in Rajisthan the overall claim experience of industry has

worsened than previous year with industry claim ratio increasing from 84.88% to 86.30%. Major loss makingportfolios were Marine and Health insurance.

Though the Health portfolio experience has improved over premvious year marine has been hit hard(Seems that the

pirates are having their impact on turbulent waters of marine insurance too ).

Private players were far better off than their public sector counterparts with managing to close the year with overall

claim ratio of 76.84% compared to 91.3% experienced by Public sector enterprises.

CLAIM EXPERIENCE

General insurance industry paid total of

Rs.1970257 lakh as claims this year up from last

years claims paid of Rs.1637112 lakh.*

Private players saw increase of around 45% in the

claims paid over the last year.

*Exclues standalone health insurers, AIC and ECGC


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Claim Ratio Statistics1

Incurred Claims Ratios FY 2008-09

Private Sector Public Sector Total

Segment 2007-08 2008-09 2007-08 2008-09 2007-08 2008-09

Fire 72.28 75.86 50.69 74.97 68.69 75.72

Marine 82.68 101.05 100.32 109.02 86.68 102.90

Motor 104.76 98.90 71.95 75.64 92.31 88.84

Health 112.36 116.60 94.84 85.33 107.00 105.95

Others 54.13 52.69 46.03 59.11 52.51 54.15

Total 90.43 91.30 72.23 76.84 84.88 86.30

Third Party Administrators

TPAs were introduced by IRDA in accordance with The IRDA (TPA-Health Service) Regulations, 2001 to work asintermediaries to play a crucial role in claim processing and allied services on behalf of insurers. The number of TPAs

have increased to 27 over the number of years and the quantum of business has also increased due to robust growth

of Health Insurance Industry.

This year two TPAs were granted license. Still the TPA body faces key issues with viability of business and challenge to

survival with minimal fees being paid to them. Slowly even insurance companies are also coming up with newer ways

to compensate TPAs like on per claim basis rather than as part of overall comission.

Trend of managing policy servicing operations in-house is growihg among insurers. If this grows there will be a

serious threat to the existance of TPA under current stringent guidelines they have to follow.

OPERATIONAL EFFICIENCYiii

With very thin operating margins to work with insurance companies have been trying to be as efficient as possible in

their operations. Some chose to ride on technology and state of the art IT applications to do it some engaged

consultants to combat rising costs and increase profitability.

Attached table shows the operational efficiency of major players in general insurance industry. It is surprising to see

New India Assurance company as most inneficient company among public sector players as it was the most efficient

in the group last year.

Among private players players with only 4+ years of experience has been shown here for appropriate analysis.

Interestingly IFFCO-TOKIO happens to be operationaly most efficient company among its peers followed by ICICI

lombard closely. It must be noted that IFFCO-TOKIO managed to improve the operational efficiency against industry

average showing different results.

1Does not include standalone health insurers.


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Operating Expense ratios of Major Non-Life Insurers

Year

Operating Experience

2008-09 2007-08

NATIONAL 22.11 22.40

NEW INDIA 26.41 19.31

ORIENTAL 23.07 21.63

UNITED India 24.11 24.40

PUBLIC - OVERALL 24.11 21.70

ROYAL SUNDARAM 27.33 25.11

RELIANCE 28.25 28.92

IFFCO-TOKIO 17.44 17.84

TATA AIG 32.92 29.54

ICICI LOMBARD 19.95 16.97

BAJAJ ALLIANZ 22.86 21.81

CHOLAMANDALAM 23.92 25.29

HDFC ERGO 31.69 33.58

PRIVATE -OVERALL 24.50

With innovative products and new processes being introduced by insurers overall general insurance industry in India

is bound to see new and interesting dimentions.

NOTE

1. Overall analysis and figures constituted in this report have been based on the IRDA report published for FY 2008-09. Places where

international comparison has been drawn data have been drawn from Swiss Re reports.

2. The IRDA report consists details of state wise geographical performance & presence of life insurers though its not the same for general

insurance industry.

iFigures Exclude gross premium underwritten by 2 standalone health insurers, AIC, ECGC and National Reinsurer GIC.

iiHealth insurance premium here includes Star Health & Apollo DKV

iiiOnly companies with minimum 4 years in operations have been taken into account.


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General Insurance Report 2008-09

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