Indian Insurance Markets
Casualty Actuaries of Greater New York
Spring Meeting 2004
New York, 3 June 2004
Thomas Holzheu
Swiss Re, Economic Research & Consulting
India: a growing economy
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 2

India has one of the largest economies in Asia with GDP of
USD 612 billion and population over 1 billion.

Real GDP has grown on average by 6% during the past
decade. Most commentators on India are positive on its
growth prospects.

Despite the growth, per capita income is only USD 573
and there are wide income disparities.

A growing middle class of 200-300 million consumers is
looking to spend their increasing incomes on houses, cars
and other consumer durables.

As 63% of Indian population is in 15-64 age group and
another 32.2% in 0-14 age group, there will is continued
labor supply to fuel growth.
India: a growing economy
Projected growth of emerging markets
GDP growth, per capita income and size of country by GDP in 2014
GDP per capita, USD at 2003 prices
25 000
20 000
Hungary Taiwan
15 000
Poland
10 000
Malaysia
Mexico
Argentina
5 000
0
-5 000
0
South Korea
Czech Republic
China
India
Russia
Brazil
1
2
3
4
5
6
7
8
Compound annual GDP growth, 2004-2014 (in %), inflation-adjusted
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 3
Sources: Oxford Economic Forecasting; Swiss Re Economic Research &
Consulting
9
10
Non-life insurance
Real premiums
y-y%
bn INR in 2002 prices
450
30%
Projections
400
25%
Real Non-life premiums
(LHS)
350
20%
Growth (RHS)
300
15%
250
10%
200
5%
150
0%
100
-5%
50
0
1990
1992
1994
1996
1998
2000
2002
2004
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 4
2006
2008
2010
More than double
Source: Swiss Re Economic Research & Consulting (Asia); Data starting 2002 are forecasts
2012
-10%
Life insurance
Real premiums
y-y%
bn INR in 2002 prices
2,500
45%
2,000
40%
Projections
Total real life
premiums (LHS)
35%
Growth (RHS)
30%
1,500
25%
20%
1,000
15%
10%
500
5%
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 5
-
0%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
+300%
Source: Swiss Re Economic Research & Consulting (Asia); Data starting 2002 are forecasts
2012
Insurance penetration rates
increase with income
Penetration, Non-life 2000
Switzerland
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
US
S Korea
Taiwan
Page 6
Japan
Malaysia
Hong Kong
Indonesia
Vietnam
100
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Australia
India
China
Thailand
Singapore
Philippines
1,000
10,000
Per capita GDP, USD (log scale)
100,000
Note: The S-curve shows the statistical relationship between insurance penetration and economic
development (represented by GDP per capita). The curve is estimated using panel data between
1979-2000 from more than 90 countries. Source: sigma No.6/2001
Growth potential of the Indian
insurance market
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 7

There has been significant growth in both life and non-life
insurance premiums in India over the last decade.

Despite the growth in premiums, the penetration rates is
below 0.5%. The per capita insurance premium is below
USD 12 for life as well as non-life insurance.

Large fractions of the Indian population are still not
covered by non-life insurance.

Indian market is untapped, with considerable potential for
growth.

Regulation and low per capita income explained the low
penetration. With Indian economy growing, the biggest
constrain on future growth remains the slow deregulation.
Regulation and competition:
Achievements

Before 1999, there was a monopoly of state run
insurance companies.

In wake of reforms initiated by the Indian government, the
passage of Insurance Regulatory Development Act (1999)
opened insurance for private companies.

Entry of private insurers have kept strong competitive
pressures on incumbents, which are the subsidiaries of
previously state run insurance company.

Global insurers have formed joint ventures with domestic
partners.

Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 8

Product innovation in several areas has been noticed.
Solvency margin requirements have been introduced.
Regulation and competition:
To-do-list
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 9

Despite move towards liberalization, significant
regulations still exits.

Foreign companies are denied majority control. Their
participation is capped at 26% for joint ventures.

All general insurers are required to cede 20% of their
business to GIC (state run reinsurer).

Foreign reinsueres can be used only after all national
capacity has been explored. Reinsurance is geared
towards maximizing domestic retention.

Cession to any one foreign insurer cannot exceed 10% of
total oversees cessions.

More than 60% of the non-life premiums fall under a tariff
regime set by the Tariff Advisory Committee (TAC).
Major challenges
Major challenges facing India’s insurance market:
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 10

Unleash potential of domestic insurance market.

High level of regulation.

Ensure balance between state-owned and private
companies.

Management of huge nat cat exposures.

Establish a sizeable domestic reinsurance market.
Key issues to address
To meet these challenges, India’s insurance market
needs to address these key issues:
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 11

FDI cap of 26% on foreign capital (49% awaiting
cabinet approval).

Detariffing of non-life sector.

Unlimited motor third-party liability threatening the
viability of business.
Indian politics: Recent update
Indian Insurance Markets
CAGNY spring meeting ‘04
Thomas Holzheu
Page 12

Recent elections led to the emergence of Manmohan
Singh, the architect of Indian liberalization, as the
Prime Minister.

Unable to obtain a clear majority, the Congress party
had to rely on left fronts support for forming the
government. The left front has been opposing
deregulation and liberalization and its needs to be
seen if they will be impediments for dismantling of
regulation in general and insurance in particular.

On the whole it appears that with small glitches or
delays, India is on her way to more liberalization and
market oriented economy.