India to be sixth largest insurance market by 2032, says Swiss Re Institute

The Swiss Re Institute is forecasting that India will be the sixth largest insurance market in the world by 2032. It says the market is poised for rapid growth, with total insurance premiums growing on average by 14% annually in nominal local currency terms over the next decade. In 2021 India was the tenth largest insurance market, according to Swiss Re. In its latest report, India’s insurance market: poised for rapid growth, the Swiss Re Institute says rapid economic development and income growth, and higher risk awareness in large part due to the experience of the Covid-19 pandemic, are expected to be among the main drivers of industry growth. Non-life insurance premiums will continue to grow in 2022 and 2023, but at a slower pace due to the Russia-Ukraine war and high inflation, recovering to 6.7% average annual growth in 2024 and 2025, says the report. The largest non-life line of business is health, and premiums in India grew by 22.5% in real terms in 2021, mainly driven by pandemic-induced increased risk awareness. The report states: “We anticipate that non-life insurers will continue to face near-term headwinds in the profitability of their core underwriting portfolios due to geopolitical tensions, high inflation and intense competition. India’s insurers have historically benefited from favourable investment income, but the pandemic and geopolitical tensions may pressure returns on investments.” It continues: “At the same time, the impact of high inflation will show in rising claims. In construction, supply disruptions and labour shortages have led to an increase in repair and rebuilding costs, and in turn higher claims. In motor, claims costs have risen as shortages of parts have kept the price of new and used vehicles historically high. Accident, motor liability and general liability business will also likely be impacted, with high inflation feeding through into bodily injury claims.” The report notes that non-life insurance penetration is very low in India (just 1%), with a majority of non-life premiums coming from health and motor. Swiss Re says this makes for a large property insurance financing gap. It also notes India’s large natural catastrophe protection gap in 2021, which it estimates at 95%, or $2.61bn, suggesting that more than 95% of the losses to property caused in the event of natural catastrophes are uninsured. On the regulatory side, the report points out that in 2021 the government raised the FDI limit (on foreign ownership) in the insurance industry (in both the life and non-life sectors) to 74% from 49%, and says there are expectations that it will be lifted to 100%. The insurance regulator is also reviewing proposals to reduce paid-up capital requirements for new entrants. The country’s insurance regulator is planning to introduce risk-based capital (RBC) solvency requirements for insurers. “The immediate impact of the introduction of RBC could be on the equity and solvency position of insurers, which will likely shift towards capital allocation based on the nature of the risk in the underwriting portfolio. The risk-weighted approach for capital allocation should result in a freeing up of capital in certain cases, possibly for large insurers with more diversified underwriting portfolio, while requiring higher capital requirements on insurers underwriting more risky business. This would likely also increase the importance of reinsurance as a tool to manage earnings and balance sheet volatility more efficiently,” states the Swiss Re publication.

India to be sixth largest insurance market by 2032, says Swiss Re Institute

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