The life insurance industry has seen several phases since
the entry of private players into the sector at the turn of the millennium.
Hence, before we talk about 2015, it is worthwhile spending sometime on the
years that have preceded it.
Broadly,
these can be classified under three phases. The first phase was one where
private players started to establish themselves in the marketplace. The second
phase coincided with the growth in the equity market where new business
premiums grew on the back of investment-linked product selling. This was a
phase when insurers, regulators and customers believed nothing could go wrong.
More insurers and distributors entered the industry, increasing the reach of
insurance products multi-fold.
In
hindsight, a major proportion of the growth trajectory was based on ‘riding the
wave’ and left several customers dissatisfied once the global financial crisis
hit home. So it was not surprising that just as the party had got going, the
regulator stepped in to take away the punch bowl. This in effect laid the stage
for phase three, which has lasted longer than most industry watchers would have
expected.
Regulatory
intervention is now taken as a fait accompli post the tectonic shift in
regulations since 2010. Margins of Indian life insurers companies are amongst
the lowest in the world. Several agents exited the industry in its aftermath as
their earnings ability declined. An industry that prided itself on bringing
protection to individuals and households saw a long phase of stagnation in new
business premium collections. But as they say, one tends to learn more from one
crisis than from multiple successes.
Phase
three also helped segregate the men from the boys. You could clearly see the
large private players breaking out of the pack as market share started to
polarise in their favour. These are players who today are in a position to
innovate and offer a balanced product mix to consumers. New segments such as
term plans, annuities, health plans, low-cost Ulips have started to reignite
growth for them. These players have the ability and financial muscle to invest
in improving processes, next generation technology and digitisation. They
players have the wherewithal to reach out to customers and manage high
persistency levels and drive growth through renewal premiums.
Large
private players now have well known brands which can compete in most markets
with the market leader as a new set of consumers enter the insurable
population. These players are also well integrated with bancassurance partners
besides having a diversified channel mix. We have already seen the market share
of this segment grow in the current financial year and this should pick up more
steam in 2015.
As
the cost of regulation becomes even more onerous through further caps on
expense management, insurers will need to fine-tune their business models
further. As we exited 2014, an ordinance of insurance laws (amendment) was
issued by the government. Beyond the headline on increasing foreign investments
to 49%, the ordinance offers more teeth and flexibility to the regulator to
frame guidelines around commissions and expenses, customer experience
management and citizen charters, claims settlement, and so on. This would
require insurers to be nimble enough to adjust their business processes.
As
the industry starts to attract more foreign capital and if a few insurers
decide to go in for a public listing, there will be a need for the players to
disclose more financial and non-financial data than what is required currently.
This will increase the levels of transparency and the understanding of how an
insurance industry operates amongst analysts and the media.
I
believe the industry should be able to sustain a smooth upward growth curve growing
at 12-15% CAGR over the next five to six years on the back of relatively stable
economic policy and industry regulations. 2015 could potentially be that year
when we see a distinct shift to the next phase of the life
insurance in India industry.
