The Indian insurance market is facing similar issues to other global insurance markets with rates still hardening and terms and conditions in some lines, notably liability, tightening. The market is seeing some consolidation but also a gradual opening up to foreign insurers.
According to the Insurance Regulatory and Development Authority of India (IRDAI), the general insurance industry underwrote total direct premium of INR1.99 lakh crore in India for the year 2020-2021, as against INR1.89 lakh crore in 2019-2020, registering a growth rate of 5.19% as against 11.49% growth rate recorded in the previous year.
Property and liability
“For large companies, the Indian insurance market is competitive in terms of pricing for all lines of business except property,” says Sanjay Kedia, country head and CEO, Marsh India. “Even the property insurance market in India was highly competitive till 2019. In 2019, the national reinsurer prescribed a minimum mandatory reinsurance price for the insurers to cede their risk in the treaty, which brought the fixed pricing regime back and made the Indian market behave like a tariff market. Consequently, the Indian insurance market has no price competition in the fire and engineering insurance line of business.”
In India, very large companies with a huge property exposure at a single location with a sum insured of more than $350m are allowed to buy reinsurance-driven policies, which are often more competitive, Kedia explains. But for the vast majority of corporates, whose sum insured is lower than $350m at a single place, since 2019 there is no price competition and no freedom with regard to policy terms and deductibles.
As for liability insurance, the Indian market provides access to global policy terms and products, and pricing in liability insurance remains very competitive given the Indian market traditionally is less litigious, says Kedia, and the overall claims ratio, compared to other mature markets, remains on the lower side.
He explains that IT, ITES companies and financial services companies have started buying cyber insurance policies, with each year seeing higher demand and increased limits for such policies in India.
He also points out that India is a large service industry hub and most global services companies have set up back offices and knowledge centre operations in India. These companies employ a large workforce and hence have a huge outlay on employee health and benefits-related areas. He says group medical plans are widely prevalent among all employers and are highly price competitive, offering a lot of choice depending on the needs of the insured.
Property lines have witnessed a hardening of rates during the last three years, says Kedia, but it has currently stabilised. However, there is still significant hardening of rates on liability lines, especially cyber.
“We are witnessing some tightening in underwriting in liability insurance. For instance, insurers have started to restrict total exposed limits and ransomware-related coverages for cyber policies. The higher loss ratios have led to stricter measures such as restricting capacity and coverage. A few insurers are sub-limiting cyber claims to a maximum of $5m with a 50% co-insurance clause,” he says.
He adds: “Insurers have revamped their underwriting guidelines to focus on better risk selection. They now require additional ransomware questionnaires and responses, which dictate the pricing, coverage and capacity on offer. The uptick in ransomware losses has also led some insurers to run outside vulnerability monitoring using third-party vendors for common vulnerabilities and exposures.”
India is facing a capacity crunch in liability lines, especially cyber. Kedia says clients are demanding higher capacity although the market has limited capacity, especially since the reduction in capacity by leading reinsurers this year. “Critical vulnerabilities and volatile market conditions are creating major cyber capacity issues in the market. Demand for cyber insurance is currently growing more steadily than the capacity on offer. In particular, the loss-exposed sectors require proper risk coverage: healthcare, services, retail, the manufacturing sector, government institutions including the education sector, as well as financial services providers,” says Kedia.
He adds: “Other than that, we continue to see limited capacity in the market on some niche areas like stock throughput policies, clinical trials, and kidnap and ransom.”
Historically, the Indian insurance market has seen a fair amount of consolidation activity and this has become more relevant in the last few years, according to Annie Arya, senior associate, Khaitan Legal Associates. “Top players in the market control a majority of the industry and this would continue as they expand their exposure to include smaller players with niche capabilities or novel business propositions,” she says.
She notes that in India, large insurance companies are operated through joint venture partnerships between global insurers and large Indian corporate houses. The Indian market began to liberalise for foreign players in the 2000s. With the Insurance Act being amended in 2015, the limit for foreign direct investment (FDI) was increased to 49% without government approval. In 2021, the central government raised such foreign limits to 74%.The increase of foreign investment limits also relaxed the existing ‘Indian owned and controlled’ requirements for insurers.
On the reinsurance side, India has just one domestic reinsurer – GIC Re. Branches of foreign reinsurers were permitted to set up in 2016 and India saw the entry of global players such as AXA France Vie, Swiss Re, Munich Re, XL Catlin, Hannover, RGA and Allianz into the Indian reinsurance market through their domestic branches, says Arya.
She adds that for insurance intermediaries such as insurance brokers, agents etc, an amendment to insurance laws and the FDI policy brought about a relaxation in foreign investment limits and FDI was permitted to 100%, and there are several insurance intermediaries now that have foreign parties as majority shareholders.
Marsh’s Kedia says that with India being an underpenetrated market, there is huge potential to grow. According to various market estimates, the Indian general insurance market is expected to grow by 15%-17% during the next three to five years, he says, and many new insurers are entering the Indian market.
India does not allow non-admitted insurance and Kedia explains that global insurers can participate in India as a direct insurer or reinsurer giving capacity on treaty insurance and risk-based facultative insurance.
A few selected lines like marine cargo insurance, marine liability, and protection and indemnity insurance can be bought from an insurer not registered in India on non-admitted basis, following a declinature process. If at least two government and private insurance companies registered in India decline in writing, then the client can approach the government for permission to buy such insurance on a non-admitted basis from an insurance company not registered in India, explains Kedia.
Khaitan Legal’s Arya says overseas non-admitted insurers are not permitted to undertake direct business in India, and any exemptions to this could be provided under specific or general permission of the exchange control regulator – the Reserve Bank of India or in specific circumstances from the IRDAI.
She says that while Indian regulators have largely shifted their focus to ease of doing business, adopting solutions to industry concerns, liberalising policy etc, greater importance is being given to compliance. Enforcement mechanisms have been strengthened through tightening of regulations, while penalties, among other consequences, are being levied for non-compliance.
Arya notes a significant development with the establishment of the International Financial Services Centre in India – GIFT City. A separate unified regulator has been set up to specifically regulate GIFT City, and several regulatory and taxation benefits are being provided to financial services (including insurance) being set up in GIFT City, she says.
Marsh’s Kedia notes that the focus of the new IRDAI chairman has been to increase insurance penetration in the country and make simple and affordable insurance products available to individuals and corporates.
“The recent measures of the regulator to allow insurers to launch health and most of the general insurance products without prior approval under the ‘use and file’ guidelines is a step in the right direction. These measures will allow freedom for insurers to sell customised products, while giving policyholders more options will greatly benefit customers, as competition on product features will bring innovation. We are hopeful that these steps will bring actual change in the Indian insurance market, which will greatly benefit policyholders,” he says.