India market. Non Life Insurance Update. Introduction. In this issue. Industry statistics. Market update. Regulatory update. Distribution

>> India market Non Life Insurance Update India | Issue 18 | June 2011 Introduction We are pleased to circulate our latest quarterly newsletter on t...
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India market Non Life Insurance Update India | Issue 18 | June 2011

Introduction We are pleased to circulate our latest quarterly newsletter on the non life insurance industry in India. While the general insurance industry closed the last year with a healthy growth of approximately 22 per cent, there are structural issues concerning profitability and orderly growth of the business. Concerns on losses under the motor pool and group health segments linger, with the pool arrangement coming for sharper review during the last quarter along with a few regulatory measures to stem the losses.

In this issue Industry statistics Market update Regulatory update Distribution Products Contact details

The concerns on the underwriting front were in fact underscored by Standard & Poor’s while releasing its recent report announcing a negative outlook for the general insurance segment of the country during the current year. Despite which the healthy growth of the industry and the economy in general is attracting fresh players to India from global markets. The market is also vibrant with news of potential mergers and change of ownership of domestic promoters. While the regulator has recently notified the norms for mergers and acquisitions to take place in the general insurance business (as per details provided in our last Newsletter), there are recent reports of change of domestic ownership in the joint venture of AXA, with the corporate giant Reliance Industries announcing acquisition of the domestic stake of the Bharti group, signaling a more focused and aggressive growth. We hope you continue to find the newsletter interesting and informative, and would welcome your comments and feedback. Towers Watson Risk Consulting and Software, India

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Among the state-owned companies, New India continued to be the leading insurer during FY2010-11 as well as during the first month of the current year with a gross underwritten premium income of Rs70.7 billion in FY2010-11 and Rs10.1 billion in April 2011 respectively.

Industry statistics April 2011

National Insurance registered a higher than average business growth amongst public sector insurers during FY2010-11.

Gross new premium income for private sector (in Rs millions) ICICI-lombard Bajaj Allianz HDFC ERGO General IFFCO-Tokio Reliance General Tata-AIG Royal Sundaram Cholamandalam Future Generali Bharti AXA General Shriram General Universal Sompo SBI General L&T Raheja QBE

Market update New/potential entrants

0

1,000 2,000 3,000 4,000 5,000 6,000 7,000 April 11

April 10

Source: IRDA website

With a total gross underwritten premium of Rs425.7 billion during the year ended 31 March 2011, the non life industry registered a growth of 21.7 per cent over the previous year. The private players had registered a robust growth of 22.5 per cent during the year, slightly improving their collective market share to 41.3 per cent. Meanwhile, during April 2011, the first month of the current financial year, the industry recorded a gross underwritten premium income of Rs52.5 billion, with the private sector insurers accounting for 43.7 per cent of the business. Overall, the industry registered a growth of close to 20 per cent in the month compared to same month last year. While ICICI Lombard and Bajaj Allianz General remained the top two non life private insurers in terms of the gross underwritten premium, HDFC Ergo climbed two positions to become the third largest non life private insurer with a business growth of 43.4 per cent in April 2011. Gross new premium income for PSU companies (in Rs millions)

The IRDA has granted the first stage (R1) approval to the proposed general insurance joint venture of Kolkata based Magma-Fincorp with Germany’s HDI Gerling International. The joint venture is expected to commence operations during the current year. Berkshire Hathaway which has recently entered India as a corporate agent to distribute the products of Bajaj Allianz General is said to be considering a presence in the reinsurance market. The company is said to be awaiting revision of the cap on foreign equity in the insurance sector before making a firm decision.

News about industry players Reports indicate that United India Insurance has emerged as the most profitable public sector insurer during FY201011. With an increased focus on extending cover to micro, small and medium enterprises (MSMEs) and in the rural market, the company is looking at achieving a business of Rs80 billion during FY2011-12. Meanwhile, United India was recognised as the ‘General Insurer of the year – Public Sector’ by a business television channel. At the same event, Bajaj Allianz General was declared the ‘General Insurer of the year’ in the private sector category. Bharti AXA General Insurance Company is said to have plans to infuse Rs2 billion capital during the current calendar year. The company is currently capitalised at Rs5.50 billion. In an attempt to become profitable, the company is reportedly planning to re-balance its business with exposure to motor insurance at around 60 per cent and that of personal accident and health insurance at 20 per cent.

New India

United India

National Insurance

Oriental Insurance

0

2,000

4,000

April 11

6,000 April 10

Source: IRDA website

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8,000

10,000

12,000

Cholamandalam MS General Insurance claims to have cut its underwriting losses drastically during the year just ended by cutting exposure to the group health insurance segment by 80 per cent. This is said to have helped the company bring down its claim ratio in the group health insurance segment from as high as 130 per cent in the previous year to 68 per cent in the latest period. The

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company is targeting new business premium of Rs13 billion during the current year. Promoters of Royal Sundaram Alliance have infused capital Rs650 million, increasing the total tangible net worth to Rs2.75 billion. The national re-insurer General Insurance Corporation expects overseas business to contribute 50 per cent of its total business during the current year. GIC has recently opened an office in Malaysia and is planning to open offices in Brazil and South Africa soon.

Other news The global credit rating agency Standard & Poor’s has downgraded the outlook for the non life insurance industry in the country from Stable to Negative, attributing to the poor underwriting performance and the prospects during the current year. The agency mentioned in its report that “the negative outlook on India reflects our view that underwriting performances are likely to stay very weak this year despite strong growth potential for premiums”, The directive issued by the regulator in January 2011 requiring insurers to provide for an additional Rs70 billion by March 2011 for third party motor business has had a dampening impact on the bottom line of general insurers. The decision, based on a study commissioned by the regulator (as reported in our last Newsletter), has been resented by the General Insurance Council, the representative body of insurers, which has concluded that the regulator’s estimate of the insurers’ extant liabilities on third party motor portfolio is grossly exaggerated. The regulatory directive has led to capital infusion and depressed results for insurers, such as: 

National Insurance and United India Insurance, who in previous years have paid massive amounts in dividends and taxes, are likely to seek additional capital from the government to retain their solvency margin at the statutory level.



ICICI Lombard witnessed a loss of Rs800 million, Chola MS General Rs230 million, IFFCO Tokio Rs490 million and HDFC Ergo Rs360 million.

Carnation, a multi-brand automobile service provider, is said to be launching a project that allows a motor insurance company to carry out an online process for damage assessment, claim filing and claim approval, with scope for central monitoring of claims, all of which are expected to increase transparency and reduce the scope for discretion on the part of dealers and loss surveyors. A few private insurers are said to have expressed interest in the arrangement. There is growing interest in specialty insurance in the country as evident from the instance of a cover of Rs9 billion issued by National Insurance Company insuring against any shortfall in advertisement revenue for the Indian Premier League (IPL) cricket tournament. The Board of Control for Cricket has also bought insurance protection worth Rs6 billion for the fourth edition of the IPL.

Regulatory update Directive to General Insurers on increased provisions for third party motor insurance pool losses According to the report submitted by Mr K P Sarma, consultant actuary to IRDA, the ultimate loss ratios of the Motor Third Party Insurance Pool could be estimated in the range of 170 to 195 per cent over the three year period ending March 2010, while the insurers had maintained reserves assuming a loss ratio of 126 per cent. On 12 March 2011, the IRDA issued a directive to all general insurance companies that till the actual losses on third party motor pool are determined based on a peer review of each insurer to the satisfaction of the regulator, companies should make provisions assuming a loss ratio of 153 per cent retrospectively from FY2008. The IRDA also permitted a lower solvency ratio of 137 per cent for the current year, 145 per cent for the next year, and 150 per cent for FY 2014 to help ease the financial burden from the above decision, restraining the companies at the same time from paying any dividends to shareholders, or bonus/incentives to senior management personnel as long as the solvency ratio is below 150 per cent.

At the same time, the regulator has taken steps to improve the profitability on the third party motor insurance front by announcing increase in the mandated premium rates.

Increase in third party motor insurance premium rates

The four public sector companies have initiated a joint project on a pilot basis to set up a ‘Settlement Committee’ consisting of prominent citizens including a retired judge, to work out out-of-court compromises and settlements in an effort to speed up settlement of claims of aggrieved policyholders.

With a view to stem the losses under the motor pool, the IRDA increased the third party premium rates by 10 per cent for private cars and two wheelers, and 68.5 per cent for commercial vehicles with effect from 25 April 2011. The regulator has now proposed to revise motor third party premium rates annually (as against the past practice of making revision once in 4/5 years) based

On customer servicing, there is an initiative to introduce online assessment of damages in motor accidents.

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on a set of parameters such as the average claims experience and the cost inflation index.

Committee on setting up a “Declined Pool” for commercial vehicles A committee set up by the regulator to review the third party motor insurance pool for commercial vehicles submitted its report in May 2011. Commenting that the current arrangement is no longer sustainable, the committee has suggested setting a minimum percentage of motor third party risk for each insurer and formation of a declined insurance pool. The declined pool will provide coverage only to those vehicles which have been rejected for insurance by insurers based on previous claims ratio, frequency of accidents, age of the vehicle, owner and driver’s track record etc., along with the insurer enjoying flexibility to price the risk accordingly. The pool would be managed by GIC and no reinsurance commission would become payable for the risks transferred to the pool. There should be an obligation on all insurers to write a specified amount of commercial third party motor risk and if any insurer were to fall short of the allocation, the declined pool would retrocede the risk from the pool to the extent of the shortfall.

Guidelines for regulation of distance marketing of insurance products With a view to protecting policyholder interest and promote orderly growth of direct marketing of insurance, both life and non-life, the IRDA released a set of guidelines in April 2011, covering solicitation and sale of insurance products through telephone, e-mail, internet, television and other mediums. A few key features of the guidelines to be made applicable from 1 October 2011 are as follows: 

The “telecallers” would have to undergo minimum 25 hours of training and qualify under a test.



Corporate agents and brokers employing tele-callers shall not be paid any remuneration on top of the commission at the prescribed rates.



Insurers should prepare a standard script for presentation of benefits, features and disclosure of insurance policies sold over the distant marketing mode. This would need to be filed with and cleared by the regulator before the tele-callers start soliciting for covers.



Tele-callers will also have to disclose the rate of commission available on the product in case the client asks for it.



In all cases where a policy is issued without obtaining a proposal in physical form, the insurers would have to provide a verbal transcript of the voice / electronic

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record of queries raised by the customer and answers thereto on the basis of which the policy has been underwritten, along with the policy bond.

Guidelines on Insurance repositories and issuance of electronic insurance policies On 29 April 2011, IRDA released guidelines for creating insurance repositories and for the issuance of e-policies. These depositories will be licensed by the regulator and linked to all insurance companies. The service is expected to greatly reduce the cost of issuance of policies and maintenance of records. The insurance repository will give a unique account number to every insured member. Opening of an e-insurance account will require proof of identity. The data maintained by the repository will include the claims history of the insured. The industry has welcomed the move as a positive measure to impart efficiency and better customer service.

Exposure draft on guidelines on web aggregators Realising the growing practice of buyers of insurance products accessing / visiting web sites to know the features and compare the prices of products offered by different insurers, the regulator has proposed to regulate such information providers, also known as ‘web aggregators’. The regulator has released an exposure draft, laying down guidelines for companies pursuing the business of web aggregation. Following are some of the key features of the draft proposals: 

A web aggregator should be registered as a company with a net worth not less than Rs5 million, and licensed by the insurance regulator for the purpose.



A web aggregator cannot act as an insurance intermediary (agent, corporate agent, broker etc.) and should not have any referral arrangement with any insurer. It should also not be in the businesses of lending, accepting deposits, or trading in securities.



Any insurer seeking to engage the services of a web aggregator would need to enter into a 3 year agreement which would be approved by the IRDA.



Insurers / brokers could remunerate a web aggregator for leads received that culminate in a sale. The remuneration cannot exceed 25 per cent of the commission payable / brokerage receivable.

The guidelines would become effective from the date to be notified by IRDA.

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Distribution Bharti AXA General Insurance has launched Risk Management Advisory service focused on Small and Medium Enterprises (SMEs) and has plans to raise the business generated from SMEs to around 20 per cent from the current 5 per cent during the current fiscal. The insurer anticipates the health insurance portability, expected to come into effect from 1 July 2011, would help the company generate 20 per cent of its targeted income of Rs1500 million. ICICI Lombard General Insurance Company has entered into an agreement with the low cost carrier, Air India Express, to provide travel insurance solutions to the airline’s overseas and domestic travelers. United India Insurance has entered into a tie up with Dena Bank under which, the bank would distribute the general insurance policies of the company through the bank’s 1,300 branches in the country.

Products Raheja QBE General Insurance Company plans to launch specialty products such as professional indemnity and D&O covers, in addition to stand-alone terrorism cover. The company is also seeking approval from IRDA for products on medical malpractices, port operations liability products and also products in protection and indemnity for fleet owners. Reportedly, three private sector insurers - Bajaj Allianz, ICICI Lombard and Bharti AXA General Insurance are in the process of developing pay-as-you-drive policies, setting the premiums in accordance with the number of miles driven. ICICI Lombard has launched a pilot project by installing devices to track the distance travelled, road conditions, and the driving time on a set of private and commercial vehicles.

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Contact details Towers Watson's Risk Consulting team covers the length and breadth of India with 58 associates based in Mumbai and Gurgaon. R Krishnamurthy – Managing Director - Products, Distribution and Markets, India Ron Kozlowski – Director of General Insurance Practice, Asia Vikas Newatia

– Director & Practice Leader, General Insurance Consulting, India

Rajesh Sabhlok – Senior Consultant, Risk Consulting, India Emails: [email protected] [email protected] [email protected] [email protected] Mumbai

Gurgaon

511/512, Solitaire Corporate Park

404B, 4th Floor, Centrum Plaza

Andheri-Kurla Road, Andheri East

DLF Golf Course Road, Sector-53

Mumbai 400 093

Gurgaon 122002

Tel: 91 (22) 4232 9900

Tel: 91 (124) 432 2800

Fax: 91 (22) 2837 0700

Fax: 91 (124) 432 2801

Singapore

Hong Kong

135 Cecil Street, Kai Centre

Suites 2106-08, Central Plaza

#09-01, Singapore 069536

18 Harbour Road, Wanchai, Hong Kong

Tel: (65) 6880 5688

Tel: (852) 2593 4588

Fax: (65) 6880 5699

Fax: (852) 2525 9706

The Indian Market Non Life Insurance Update has been prepared by Towers Watson for general information purposes only and does not constitute professional advice. The information, opinions and projections contained in this Newsletter are derived from various sources and have not been independently verified by Towers Watson. If you require professional advice or require any further information please contact any of the above named individuals. Errors and omissions excepted.

ABOUT TOWERS WATSON Towers Watson is a leading global professional services company that helps organisations improve performance through effective people, risk, and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson covers the length and breadth of India and operates from five offices in four cities.

For more information, please visit www.towerswatson.com

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