This is a Guest Post by Naval Goel – CEO & Founder, PolicyX.com
With the Indian parliament hiking the FDI limit in the insurance sector from 26% to 49%, the scope of investment and growth for foreign players is seeing an all time high. This decision was taken to facilitate consolidation within the market and support the infusion of capital which was much needed.
Currently it is being estimated that the Indian insurance industry will need more than $8 billion worth of capital to improve its solvency standards and increase the penetration levels. This was the perfect time for the Indian insurance industry to open up for the foreign players and with this happening; the future of the industry is surely climbing up the ladder.
The existing foreign players in the Indian Insurance market like MetLife and AIG will reap huge benefits from the announcement. These companies operate in the Indian market through joint ventures. If we consider the example of MetLife, the company earned $8 billions in premiums from the Asia-Pacific region which is similar to the company’s earnings in the U.S. in 2014. Japan may have been the key contributor, but analysts say that emerging markets like India will be the reason behind the company’s expansion in Asia.
Indian insurance industry is quite sizeable and attracts investment from leading insurance players from different corners of the world. It is expected that the market will grow 4 times its current size in the next decade and will cross the mark of $160 billion.
Indian Insurance Market – What potential does it hold?
Insurance market in India has a plethora of business opportunities. As of now, India accounts for less than 1.5% of the total insurance premiums in the world and around 2% of the life insurance premiums even after being the second most populated country. In terms of premiums volume, the country’s insurance market is ranked fifteenth largest in the world.
The market has huge potential to grow in the coming years. Since 2000, the life insurance penetration in India has almost doubled to become 3.1% of GDP and the World Bank forecasts a 5-7% growth in the same. The life insurance premium for India in the year 2013 was $52 Billion. A rapidly growing economy, rising level of incomes, and improving life expectancy rates are some of the many reasons that will also contribute to the growth of the sector and present a great opportunity for insurance companies overseas.
The coming quarters will see the signing of several joint venture deals between global and local players in the market. However, new entrants in the market will have to face a lot of challenges with appealing the ever-growing middle class population being the toughest one. With the influx of private players and the competition level getting a notch higher, consumers will have access to better and wider insurance products which will see the insurance sector grow.
How can new players cope?
To make a mark in the Indian insurance sector, distribution channels will play a major role. Out of the many models, the bancassurance model will be the key along with the relaxation of rules about recruiting distribution agent. Latest reforms and their impact on the entry and growth of foreign players in the market still have to pan out; and the ideas about the same can only be acquired once a company dives into the market.
When it comes to FDI, India is the third most attractive destination in the world. With the cap increasing, the companies entering will only be able to reap the advantage if they think out-of-the-box and come up with a product which is one-of-a-kind.
To sum up, innovation is the only key to impress the Indian customers for private players because 90% of LICs and GICs are with Public sector companies (PSU). These PSUs have a very dominant position in the commercial and rural markets. Their only weakness is product innovation capabilities.
How foreign players will help?
Foreign players will not only bring the required capital but will also help their Indian counterparts in developing their business through their global expertise. This will be invaluable in the development of the Indian insurance industry.
Foreign insurance companies keen on investing or venturing with Indian insurance companies will help the latter in innovating new products, strengthen the implementation of technology, and improve the client servicing tools. The existing products in the market will become more dynamic across the segments.
The Indian Insurance sector has reached an interesting point. The lack of adequate investments will no longer be a hiccup and the starvation of investment in the sector will come to an end.
The sector will see a strategic shift from top to bottom to ensure sustainability. Cost control, operational efficiencies, physical expansion, etc. will now be in focus. Furthermore, penetration of technology and online tools will help in the sector’s expansion.
IRDA has promoted the use of technology by several methods. It is one focus area which can make the difference. Some of the initiatives that have been taken globally and now can also be implemented here in India are – online sales channels, customer servicing methods, functions automation, etc.
Another technology-led innovation is E-distribution platform that will help in reducing the efforts and time required to scale up. This will deepen the online sale of policies which will help in saving commission costs, automating administration processes, and enhance customer experience.
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