Gyanendra Kumar Kashyap explains why rural India will be the next battleground for the insurance players and why will the growth come from there…
Year 2009 saw the Indian insurance industry face an extraordinary confluence of testing macroeconomic trends along with unique challenges & opportunities. As revenue growth went downhill, margins came under pressure and capital requirements surged, and with it increased the urgency for the insurers to reduce their costs, strengthen their risk management and stabilise capital positions. And if one goes by a latest report from Swiss Re (the second largest reinsurer globally), one sees that, “reduced demand, low interest rates and the need for many companies to recapitalise are some of the challenges that the industry will face in 2010.” Notwithstanding the challenges, the untapped potential of life insurance in India (whose penetration level still stands at a miniscule 4%) is certainly that one thing which can alone make the insurance industry prosper in the near future. Learning bitter lessons during the slowdown, players are now increasingly focusing on operating efficiencies and are looking at right sizing their frontline sales force and making them more efficient. As per the latest available numbers, while the annualised premium earnings (APE) for the private life insurance players has increased by a healthy 29.6%, the same was pegged at a whopping 45% for the state-owned LIC. The general insurance segment too witnessed a 16% (y-o-y) growth of the gross premium underwritten.
These numbers bear testimony to the fact that insurers are now evaluating economic returns before making any new investment. Aware of the shifting landscape, the insurance regulator IRDA too is in the process of framing guidelines for M&As in the sector. Not only this, the regulator also plans to come out with IPO guidelines for insurance companies by February-end which will allow them to raise funds from the capital markets (Reliance Life could be the first life insurance company in the country to come out with an IPO). These guidelines will further protect the policyholders’ interests and also ensure transparency and corporate governance.
Considering all this, one can say that the insurance industry in India is certainly ready for a fresh start. In fact, industry leaders like Deepak Sood, CEO of Future Generali India Life Insurance Co, believe that with rising optimism in the Indian stock markets, it’s time that customers reap the benefits of a market that has shown stability and resilience and is poised for a long-term positive run. Further, as private players take on public sector behemoths by having strategic tie ups with regional rural banks, rural India will be the much wanted battleground. Harpal Karlcut, CEO, Canara HSBC Oriental Bank of Commerce Life Insurance Co agrees with the recent development as he tells B&E, “Given that the market is inadequately insured, rural areas offer great potential. We are aided by our strong distribution model that will enable us to take life insurance to large sections of the society and help meet every Indian’s need for insurance.” With India’s poorest sections living in rural areas, it’ll be interesting to see how the insurance giants finally end up making money.
UP AND COMINING
Since the stock market lows last March, the life insurance stocks have recovered dramatically. In 2010, capital concerns will be largely behind the industry and investors will return their focus on the underlying business fundamentals of the sector. Though the fundamentals of the industry are expected to improve in 2010, the sector will still face some headwinds. In addition, while one can anticipate investment income to increase over the 2009 levels as insurers put more money to work in the debt markets, most insurers will continue to maintain defensive liquidity positions, which will act as a drag on earnings growth. It is also expected that the overall sales volumes, especially those of higher premium products, will remain depressed versus the levels seen in most of this decade. Although merger and acquisitions were virtually non-existent in 2009, the situation is all set to change in 2010.
Read more....
Year 2009 saw the Indian insurance industry face an extraordinary confluence of testing macroeconomic trends along with unique challenges & opportunities. As revenue growth went downhill, margins came under pressure and capital requirements surged, and with it increased the urgency for the insurers to reduce their costs, strengthen their risk management and stabilise capital positions. And if one goes by a latest report from Swiss Re (the second largest reinsurer globally), one sees that, “reduced demand, low interest rates and the need for many companies to recapitalise are some of the challenges that the industry will face in 2010.” Notwithstanding the challenges, the untapped potential of life insurance in India (whose penetration level still stands at a miniscule 4%) is certainly that one thing which can alone make the insurance industry prosper in the near future. Learning bitter lessons during the slowdown, players are now increasingly focusing on operating efficiencies and are looking at right sizing their frontline sales force and making them more efficient. As per the latest available numbers, while the annualised premium earnings (APE) for the private life insurance players has increased by a healthy 29.6%, the same was pegged at a whopping 45% for the state-owned LIC. The general insurance segment too witnessed a 16% (y-o-y) growth of the gross premium underwritten.
These numbers bear testimony to the fact that insurers are now evaluating economic returns before making any new investment. Aware of the shifting landscape, the insurance regulator IRDA too is in the process of framing guidelines for M&As in the sector. Not only this, the regulator also plans to come out with IPO guidelines for insurance companies by February-end which will allow them to raise funds from the capital markets (Reliance Life could be the first life insurance company in the country to come out with an IPO). These guidelines will further protect the policyholders’ interests and also ensure transparency and corporate governance.
Considering all this, one can say that the insurance industry in India is certainly ready for a fresh start. In fact, industry leaders like Deepak Sood, CEO of Future Generali India Life Insurance Co, believe that with rising optimism in the Indian stock markets, it’s time that customers reap the benefits of a market that has shown stability and resilience and is poised for a long-term positive run. Further, as private players take on public sector behemoths by having strategic tie ups with regional rural banks, rural India will be the much wanted battleground. Harpal Karlcut, CEO, Canara HSBC Oriental Bank of Commerce Life Insurance Co agrees with the recent development as he tells B&E, “Given that the market is inadequately insured, rural areas offer great potential. We are aided by our strong distribution model that will enable us to take life insurance to large sections of the society and help meet every Indian’s need for insurance.” With India’s poorest sections living in rural areas, it’ll be interesting to see how the insurance giants finally end up making money.
UP AND COMINING
Since the stock market lows last March, the life insurance stocks have recovered dramatically. In 2010, capital concerns will be largely behind the industry and investors will return their focus on the underlying business fundamentals of the sector. Though the fundamentals of the industry are expected to improve in 2010, the sector will still face some headwinds. In addition, while one can anticipate investment income to increase over the 2009 levels as insurers put more money to work in the debt markets, most insurers will continue to maintain defensive liquidity positions, which will act as a drag on earnings growth. It is also expected that the overall sales volumes, especially those of higher premium products, will remain depressed versus the levels seen in most of this decade. Although merger and acquisitions were virtually non-existent in 2009, the situation is all set to change in 2010.
Read more....
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
