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    BCG Insurance Report

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    Chandra Bhushan
    The Indian insurance industry has grown significantly over the past decade and is expected to continue growing rapidly. Penetration of insurance premium as a percentage of GDP has increased from 2.3% to 5.2% as income levels rise. Both life and non-life insurance are correlated with increases in GDP per capita. Over the next decade, the industry will see a shift towards non-linked and single premium life insurance products, and health insurance will emerge as a second dominant non-life product. The industry will also focus on developing innovative products, improving pricing methods, and increasing penetration through new distribution channels like bancassurance and online channels to further growth.

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    BCG Insurance Report

    Uploaded by

    Chandra Bhushan
    250 views24 pages
    The Indian insurance industry has grown significantly over the past decade and is expected to continue growing rapidly. Penetration of insurance premium as a percentage of GDP has increased from 2.3% to 5.2% as income levels rise. Both life and non-life insurance are correlated with increases in GDP per capita. Over the next decade, the industry will see a shift towards non-linked and single premium life insurance products, and health insurance will emerge as a second dominant non-life product. The industry will also focus on developing innovative products, improving pricing methods, and increasing penetration through new distribution channels like bancassurance and online channels to further growth.

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    The Indian insurance industry has grown significantly over the past decade and is expected to continue growing rapidly. Penetration of insurance premium as a percentage of GDP has increased from 2.3% to 5.2% as income levels rise. Both life and non-life insurance are correlated with increases in GDP per capita. Over the next decade, the industry will see a shift towards non-linked and single premium life insurance products, and health insurance will emerge as a second dominant non-life product. The industry will also focus on developing innovative products, improving pricing methods, and increasing penetration through new distribution channels like bancassurance and online channels to further growth.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    250 views24 pages

    BCG Insurance Report

    Uploaded by

    Chandra Bhushan
    The Indian insurance industry has grown significantly over the past decade and is expected to continue growing rapidly. Penetration of insurance premium as a percentage of GDP has increased from 2.3% to 5.2% as income levels rise. Both life and non-life insurance are correlated with increases in GDP per capita. Over the next decade, the industry will see a shift towards non-linked and single premium life insurance products, and health insurance will emerge as a second dominant non-life product. The industry will also focus on developing innovative products, improving pricing methods, and increasing penetration through new distribution channels like bancassurance and online channels to further growth.

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    INDIA INSURANCE Turning 10, Going on 20

    Facilitates lending to businesses


    Promote 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.

    Customer Going wide and deep


    Penetration = Premium *100 GDP Increased from 2.3% in 2001 to 5.2% presently

    Product from a sellers market to a buyers market


    There is almost 70% reduction in price of term insurance Tailor made products and innovation(add-ons) has entered

    Channel

    2001 Life insurance Non-life insurance 75%

    2011 Life insurance 51% Non-life insurance 17%

    Earlier Third party agency

    80%

    Direct(in-house salaried sales force)

    20%

    25%

    11%

    36%

    Now*

    Bancassurance
    Broking Corporate agency Auto dealer channel

    25%
    3% 10%

    14%
    18% 10% 6%

    Branches- 6-fold 2200 in 2001 to 12000 in 2010 Agents - .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.

    Insurance industry facing challenging times The biggest challenge- to sustain profitability Life 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

    Life insurance- challenge -- high expense ratio


    To cover cost, the average monthly ANBP per agency manager = Rs200000 In reality = Rs125000 Activation 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 insurance
    Agents not finding it lucrative As premium of Rs 5-10 lakhs gives only 5-8 thousand as commission.

    The key challenge in the Indian insurance market has been the top-line growth at any cost, as they appear to have forgotten the clichd phrase Top-line is vanity; bottom-line is sanity OPEX Ratio = Operating expenses Net earned premium For 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%

    Non-life sector- High claim cost is the main reason for underwriting loss Claim ratio= 80-85% International benchmark= 60%-70% Reasons High auto third-party claims High loss ratio In health (above 100%) High payouts per claims events

    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.

    Colossal no. of changes have been implemented in the past 2 years 2010 was the year of the product Key changes Commission caps for channel for ULIPs Caps on surrender charges Minimum guaranteed return on pension product(now revised) Impact Shift towards sale of single premium and non-linked products Shift in focus on more productive distribution network.

    In FY 2020 Life 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 2010 And expected to become 60% in 2020

    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 by Rising income levels Level of education increases

    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

    The next decade will be as transformational as the past decade has been. Massive changes are expected in
    Product mix Customer mix Channel/penetration mix Products/services offered Pricing etc.

    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 dominate Health insurance will emerge as a 2nd dominant product

    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.

    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.

    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 insurance Companies are experimenting with risk- based pricing and also attempts to offer pay-per use pricing.

    Tele and online channel will become more imp

    Broking and bancassurance will grow rapidly


    Channel management approach will become more

    professional Emergence of the direct- internet+phone channel. Proliferation of alternate channel like tie-up with retailers, FMCG, airlines, hospitals etc

    Fix the agency operating model

    Build strategic, longterm nonagency

    Partnerships Incubate, experiment, and develop alternative channels Develop a customercentric operating Model Target customer / product white spaces Go lean lean is in

    Create optimal product portfolio


    Innovate to target product / customer

    white spaces Move toward riskbased pricing Develop nextgeneration claims management processes Go direct build alternative channels for retail products Define and enhance agency salesforce operating model

    Relax ownership norms


    Define IPO norms Enhance bancassurance distribution Enable direct channel Refine outsourcing guidelines Create environment to enable electronic

    statements of insurance

    Refine investment norms Define flexible norms Build depth in debt / bond / derivative market Ensure appropriate taxation policies

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