Download - Bcg Insurance Report
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INDIA INSURANCETurning 10, Going on 20
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Facilitates lending to businessesPromote higher productivity and growth by
enabling risk averse individuals to take higher risks.
Provide capital for long-term needs such as infrastructure
Offer societal support for poorer sections of the society to continue development.
Role of insurance in economic development
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Customer –”Going wide and deep”Penetration = Premium *100 GDPIncreased from 2.3% in 2001 to 5.2% presently
Product– “from a seller’s market to a buyer’s market”
There is almost 70% reduction in price of term insurance
Tailor made products and innovation(add-ons) has entered
THE PAST
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Distribution – “ From agency alone to multichannel”
Channel 2001 2011
Life insurance
Non-life insurance
Life insurance
Non-life insurance
Earlier
Third party agency 80% 75% 51% 17%
Direct(in-house salaried sales force)
20% 25% 11% 36%
Now* Bancassurance 25% 14%
Broking 3% 18%
Corporate agency 10% 10%
Auto dealer channel 6%
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Branches- 6-fold 2200 in 2001 to 12000 in 2010Agents - .6 million in 2001 to 3 million in 2011 Competition– “from a monopoly to a
competitive market” The success of many first generation entrants
attracted the second generation of competitors, leading to a total of 45 companies.
Reach – “multiplying the reach 3-5x”
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Insurance industry facing challenging times
The biggest challenge- to sustain profitabilityLife insurance– cumulative loss– 16000 crores
Non-life insurance– combined ratio = operating expences+claims+commissions*100 Net earned premium= 120%(for the past 5 years)Total underwriting loss= Rs 30000 crore
THE CURRENT
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Life insurance- challenge -- high expense ratioTo cover cost, the average monthly ANBP per agency
manager = Rs200000 In reality = Rs125000Activation ratio(for agency)= 20%Currently 40-45% of companies is doing business in
150-200 towns where owning a branch is not viable.Non-life insuranceAgents not finding it lucrativeAs premium of Rs 5-10 lakhs gives only 5-8 thousand
as commission.
“Agency is looking for the elusive profitable operating model”
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The key challenge in the Indian insurance market has been the top-line growth at any cost, as they appear to have forgotten the clichéd phrase
Top-line is vanity; bottom-line is sanityOPEX Ratio = Operating expenses Net earned premiumFor top 10 life insurers= 15% to 30%International benchmark= 10% to 15%For smaller companies= 25%Non-life insurers= 32%International benchmark= 15%to 20%
Insurance missing its uncle scrooge!
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Non-life sector- High claim cost is the main reason for underwriting loss
Claim ratio= 80-85%International benchmark= 60%-70% ReasonsHigh auto third-party claimsHigh loss ratio In health (above 100%)High payouts per claims events
“High,Higher,highest” Claim costs
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Less than 10% of the customers bought policy from the same company
Focus– pure” land Grab”Intermediary centric In Health insurance- Data is retained by
TPAs In Auto insurance- Age of the owner having
relevance on pricing is not even asked.Cross selling ratio continue to be low and low
persistency will remain as a challenge.
Where the intermediary is the customer and the end customer is forgotten
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Colossal no. of changes have been implemented in the past 2 years
2010 was the year of the productKey changesCommission caps for channel for ULIPsCaps on surrender chargesMinimum guaranteed return on pension
product(now revised)Impact Shift towards sale of single premium and non-
linked productsShift in focus on more productive distribution
network.
Regulatory changes turning the world upside down
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In FY 2020Life insurance could be 6-8 times the FY 2010,Non-life insurance 5-6 times the FY 2010.
Financial savings as a percentage of total savings has grown from approx. 40% in 2000
to 50% in 2010And expected to become 60% in 2020
THE FUTURE
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Penetration of both life and non life is correlated to GDP per capita.
As GDP , penetration of insurance premium as a %age of GDP also .
It is supported byRising income levelsLevel of education increases
Higher penetration
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As life expectancy and cost of living has been increasing, Indian customers require innovative wealth management, protection and retirement solutions
No. of large corporate has increased from 24(in2000) to 114(in 2010).
Increased sophistication and complexity of business comes the need for innovative and sophisticated insurance products
New products
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The next decade will be as transformational as the past decade has been.
Massive changes are expected in
Product mixCustomer mixChannel/penetration mixProducts/services offeredPricing etc.
The Indian insurance market in 2020
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In life insurance, regulatory changes are likely to shift the product mix– with single premium and non-linked products likely to grow.
Pension will be large, as low penetration and inadequate pension cover will drive growth in “true pension”
In Non-life insurance,Auto insurance will continue to dominateHealth insurance will emerge as a 2nd dominant
product
Product mix
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Shift “from basic products to comprehensive solutions”
In Health insurance- from simple ‘reimbursement of hospitalization’ products to ‘solutions 'that cover disease management and wellness
Exotic insurance products such as vintage car insurance and art insurance will come in the market
Life insurance market will see the emergence of variables annuities.
Product/service offering
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SMEs accounts for only 15% of the corporate insurance business and have a low 10-20% penetration.
Probability of large claims is low and underwriting risks are majorly retained.
As the financial inclusion is the top national priority, rural insurance will also grow.
Customer mix – “SMEs and micro/rural, the next frontier
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In a deregulated and de-tariffed environment- pricing is the biggest challenge.
Globally insurance pricing is significantly more sophisticated than seen In India.
Ex. Auto insuranceCompanies are experimenting with risk- based
pricing and also attempts to offer pay-per use pricing.
Pricing – “from copying competition to risk based”
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Tele and online channel will become more imp
Broking and bancassurance will grow rapidlyChannel management approach will become
more professionalEmergence of the “direct- internet+phone”
channel.Proliferation of alternate channel like tie-up
with retailers, FMCG, airlines, hospitals etc
Channel mix- “bancassurance and direct, the two emerging giants”
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Fix the agency operating modelBuild strategic, long–term non–agencyPartnerships“Incubate, experiment, and develop”alternative channelsDevelop a customer–centric operatingModelTarget customer / product white spacesGo lean — “lean is in”
Action agenda for life insurers- the journey to sustained profitability
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Create optimal product portfolioInnovate to target product / customerwhite spacesMove toward risk–based pricingDevelop next–generation claimsmanagement processesGo direct — build alternative channels forretail productsDefine and enhance agency sales–forceoperating model
Action Agenda for Non–Life Insurers —The Journey to Sustained OperatingProfits
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Relax ownership normsDefine IPO normsEnhance bancassurance distributionEnable “direct” channelRefine outsourcing guidelinesCreate environment to enable electronicstatements of insurance
Action Agenda for Regulator /Government
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Refine investment normsDefine flexible normsBuild depth in debt / bond / derivative marketEnsure appropriate taxation policies