General Insurance Report

Findings from IRDA report 2008-09

AN AMICUS ADVISORY KNOWLEDGE MANAGEMENT REPORT

 India 15th largest Insurance market in India
India among one of the most sought out market for world’s leading companies is
currently at fifteenth place as compared to other countries closely following
Ireland and Australia.
th
Interestingly India happens to be 5 largest Asian markets too. Behemoths from
world over are eying Indian insurance pie and looking for suitable Joint venture
partners and timings to enter Indian Insurance Industry.
nd
Insurance Industry growth is poised to grow towards new heights in world’s 2
large populous country with majority of population below 35 years of age
group.

After opening up of market India has become worlds’ 15th largest insurance market and with
the growing pace it is poised to give company to top 10 Insurance markets of the world.

A Roaring Tiger The small share of 1.34%* in worlds insurance industry is a clear sign of the
potential India posses for growth. This opportunity has led the Insurance
As per Swiss Re reports Indian biggies both from Life and health as well as Property and casualty insurance
Insurance Industry rose from to make India part of their 2020 strategy.
th th
19 place in year 2005 to 15 Slowly the growth of Health insurance segment has motivated many leading
health insurance companies to set up shops in India. A number of foreign
Place in 2007.
companies, including Blue cross Blue shield Association, the United Health
group, Discovery Health, Cigna Corporation and Aetna, are interested in
The fast paced growth can be entering India.
attributed to majorly the
Currently there are total 44 countries operating in Indian Insurance market
opening up of Insurance leaving SBI General Insurance company granted license recently taking total
count to 45. Shriram GICL, Bharti AXA and Rheja QBE were granted lisence to
industry and demographic underwrite risk in general insurance sphere while Canara HSBC, Oriental Bank
conditions of the country. of Commerce, Aegon Religare, DLF Peramerica and Star Union Dai-ichi were
given a go-ahead to sell life insurance in India. The breakup of the entities is
shown below.
Currently with 45 players
certified to underwrite
insurance business in India Type of business Public Private Total
Regulators are trying to manage Life Insurance 1 21 22
the growth on strong pillars of General Insurance 6 15 21
Re-insurance 1 0 1
financial stability and
Total 8 36 44
innovation.
GROWTH TRENDS OF INSURANCE INDUSTRY IN INDIA

Despite the impact of global financial crisis on Indian economy Insurance industry managed to grow by 10.18% over
last year. This comprises a growth in life insurance premium from Rs. 20135141 lakh in FY 2007-08 to Rs. 22179126
lakhs in FY 2008-09 at the same time General insurance industry(Includes Standalone Health Insurance companies)
i
grew from Rs 2799172 lakh in FY 207-08 to Rs 3091084 lakh in FY 2008-09.

Over past 5 years the Industry has grown at a

very fast pace and the growth is slowly
maturing.

Still General Insurance Industry or more

popularly called Non-life insurance industry has
not been able to match the pace with the
overall Industry growth.

The widening gap can be clearly seen in the

graph. This can be attributed to various reasons
like low penetration levels i.e. Premium of GI is
only around .9% of GDP against around 5% of
Life insurance.

Maturing Market or Lack of Innovation

The growth rate of Insurance Industry in India

has started to slow down and as per the
regulator the overall growth will limit to 10-12%
only. Despite very low penetration and density
level the growth has started slowing down. Is it
that the Indian Insurance Industry has started to
mature or its just lack of innovation in new
product designing and untapped portfolios like
crop, weather and rural products?

Performance in the first half of 2009-10

The insurance industry has registered a growth of 11.35 per cent in premium collections in the first six
months of this financial year at Rs.55866.54 crore as compared to Rs.50171.09 crore during the corresponding
period of last year. The life insurance sector has grown by around 13 per cent while the onlife segment witnessed a
growth of around 8 per cent in the first-half of 2009-10.

First year premium income of life insurance players stood at Rs.39046.59 crore in the April-September period as
against Rs.34599.37 crore in the corresponding period of last year. The total premium underwritten by the general
insurance companies in the same period was Rs.16819.95 crore as compared to Rs.15571.72 crore in the year-ago
period.
IRDA is finalizing an insurance awareness campaign through mass media, mainly through print, television and
internet, which aims at educating the public in general, as well as policyholders on what is insurance, the need for
insurance, whether insurance is adequate, risk management, what is life insurance, what is general insurance etc.
through various creatives. Simultaneously, IRDA is working on certain internal channels such as an exclusive
consumer education web-page and publication of certain sample booklets on the aforementioned topics, which
contain generic information, which insurers would also be advised to publish and distribute.

The interests of the policyholders can be well protected if the premium collected from them by the insurers is
properly and prudently invested. With this endeavor, the Authority has revised the investment guidelines prescribing
the way in which funds can be invested. Besides, the Authority monitors the investment portfolio of insurers on a
quarterly basis, to assess whether the norms prescribed by the Authority are being followed by the insurers. In order
to see that these are properly reflected in the financial statements, the accounting norms are also laid down.

IRDA has prescribed formats for submission of data both for regulatory requirements and also for other purposes.
This data needs to be properly analyzed so as to assess whether the regulated entities are following the prescribed
norms as well as to find out whether company is solvent at all points of time. As these formats are prescribed under
various regulations, IRDA is at present engaged in integrating the statistical as well as qualitative data submitted by
the insurance companies. For this purpose, the data analytics project for facilitating technology aided analysis has
been worked out and the project is at an advanced stage. The scope of the project can be aligned with the Insurance
Information Bureau which is at present operating from Hyderabad for motor and health data analysis. In order to
arrive at proper and meaningful conclusions it is pertinent that the regulated entities submit the data in time and
also to see that data is error free, thus ensuring quality of data.
PROFILE: GENERAL INSURANCE INDUSTRY

With total twenty one general insurers and one national re-insurer Insurance industry managed to grow just above
10 percent during FY 2008-09, despite the international crisis.

Players in General Insurance Industry

After recent grant of lisence to SBI* there are now 22 general insurance companies and one National re-insurer in
India. The six public general insurance companies include AIC and ECGC, on the other hand 16 private insurance
companies include two standalone health insurance companies namely Star Allied Health Insurance comp. and
Apollo DKV.

General
Insurers 2005 2006 2007 2008 2009
Public 6 6 6 6 6
Private 8 9 10 15 16*
Reinsurer 1 1 1 1 1
Total 15 16 17 22 23

Indian General Insurance Market: One of the most attractive markets

Indian general insurance market is one of the most attractive insurance markets with companies queing for entry its
expected that there will be more standalone health insurance players with Max Bupa already gearing up to start
operations.

Total gross premium collected by General insurance

companies* rose from Rs 20359 cr. in FY 2005-06 to Rs
30910 cr. in FY 2008-09. The growth can be attributed
mainly to growing Motor and Health Insurance
premium.

*Premium figures include premium incomes of standalone health

insurers while excludes AIC & ECGC

Total no. of policies sold by General insurance

companies this year was 670.60 lakh up from 572.5 lakh
policies last year. Although the YoY growth rate has
declined as compared to last year.

Year on year growth of no. of policies sold declined

from 22.69% last year to 17.13% this FY.
 Just within last 4 years Private companies have
taken over the market share from 26% to 41%.
Very soon we might see their market share out
growing those of their public sector
counterparts.

This growth could be attributed to the

innovative products these players have been
able to introduce in the market.

BIG OPPORTUNITY OR JUST A TREND

Interestingly worlds Insurance premium income

shows general insurance premiums contributing
to around 40% of Total Insurance premium
collected (Total Insurance premium = Life+ Health+
P&C)

Against that trend in India is very different and

shows average contribution of GI to total
premium Income only 13%.

PORTFOLIO PROFILE

Majority of general insurance is derived by four classes of businesses i.e. Fire, Marine Motor and Health. The growth
rate of these portfolios decides the overall growth of general insurance industry in India. This section discusses the
performance and growth of these portfolios.

Except fire all other class of businesses managed ii

to grow decently with Health and Motor being

major growth drivers.

Miscellaneous other businesses too showed a

decent growth rate with growing awareness of
different class of insurance covers among India.
This includes Aviation, liability, rural, crop and
class of businesses.

*Health premium here includes premium income of Star

health and Apollo DKV
Major players in the market

While in public sector New India Assurance has managed to remain

on top even after loosing on the market share. United India has
come up one rank at number three leaving behind oriental
insurance and is chasing National insurance very closely for the
second position.

Among private insurers ICICI Lombard still enjoys its leadership

position with 11.2% market share. Over last three years ICICI’s Changing Market Dynamics
market share has shown a declining trend with Iffco Tokio,
Cholamandalam and HDFC Ergo growing faster than market The market has changed dramatically over
average. It will be interesting to see how ICICI Lombard responds to
past four to five years. With a continuous
the current threat to its maket leadership.
decline in premium earning of fire portfolio
Graph below shows the market share of general insurance
after detariffing Motor and health has turned
companies(excluding two standalone health insurers).
out to be largest and fastest growing
segments in industry.

Health premium which used to be just 66% of

fire premium now happens to be twice as big
as total fire portfolio and the trend is
supposed to continue.

Today Motor and Health collectively

constitute to 65% of total general insurance
market while rest 35% is shared by Fire,
Marine and miscellaneous at 11%, 6% and
18% respectively.

It is expected that miscellaneous group

constituting businesses like liability, crop and
aviation to name a few will also be a major
driving force due to the untapped market and
new products being introduced in this space.
PERFORMANCE OF DIFFERENT PORTFOLIOS

Fire

It seems that post de-tarrifing fire has been a

troubled segment with continuously declining
premiums. Fire book for FY 2008-09 closed at
gross premium of Rs. 338265 lakh against last
years Rs. 345921 lakh declining by almost 2%
points

Despite selling large number of policies total

premium earned this FY in fire insurance
portfolio is about 18% less what it used to be in
FY 2006-07 before de-tariffing. There is a sign
of recovery shown by public sector companies
but private players are yet to show any
improvements. This might be attributed to the
deep pockets of public sector companies which allows them to underwrite risks agressively. Adding to the woes
Industry claim ratio for fire portfolio is reported to be 72.75% up against 68.69% last year.

Marine

Marine insurance has been reporting growth

from past many years in terms of premium. The
YoY growth this year was 8.8% showing a decline
of approximately 2% points from previous year.

Total gross premium income for marine portfolio

was Rs. 195725 lakh against last year’s figure of
179880.

The claim ratio of marine has worsened from

86.68% to 102.9% this year.

Market leaders in this portfolio were New India followed by Oriental insurance company among public sector
companies, while among private players ICICI Lombard is leading the bet closely followed by Iffco-Tokio and Tata AIG.

Motor

Growth in Motor portfolio can be largely

attributed to private insurance players who
have been showing significant growth over past
years.

Total public sector companies premium grew

marginally with National Insurance leading the
group.

On the other hand premium collection of

private players grew by 12% allowing them to
double there market share in motor insurance
business from 23% in 2005-06 to 46% this FY.
Bajaj Allianz general insurance company is the market leader in motor business followed by ICICI Lombard and
Reliance gneral insurance.

Health

Overall health insurance market grew by 31% this

FY with its size growing three times in just 4 years.
With matching growth rate of both public
companies and private companies at around 24%
the portfolio shows most encouraging trends over
past few years.

With standalone Health insurers coming in picture

there has been lot of innovative products coming
out of the stable of these companies.

While newest entrant Apollo DKV has most

diversified product portfolio it has not been able
to match the growth with counterpart Star health.
.
Interesting to know that market share of
standalone health insurers has grown to aprox
8.5% showing encouraging signs for global players
to enter into the market.

Total Premium income from health insurance

portfolio for FY 2008-09 was Rs. 664701 cr. This
includes premium of Rs.386347 lakhs, Rs. 222454
lakh and Rs. 55900 lakh underwritten by Public
sector companies, private companies and
standalone insurers respectively.

UNDERWRITING EXPERIENCE

It seems that overall general insurance industry has been pushing too hard to gain market share. In the pursuit of this
quest they seems to be struggling with underwriting results. With no company making underwriting profits in last
couple of years its very much evident that market competition is taking its tool on the pricing strategy.

With the booming economy on their side till last year, most general insurers were able to show profits till last year
but this has changed dramatically with economic slowdown and tumbling stock markets.

This year in total eight companies reported net loss. The list includes National insurance and Oriental insurance
company among public companies while Reliance general insurance, HDFC Ergo, Future Generalie, Universal sompo,
Bharti Axa and Sriram General among private players.

Major Setbacks over last year’s financial results

The nature of insurance business is such that one can never expect an insurance company to make profits every year.
The major changes over the last year clearly show the impact of tumbling markets over insurance industry.
National insurance company reported a Net loss of Rs. 14921 lakh against a Net profit of Rs. 16343 lakh last year,
situation was not very different with Oriental insurance company with reported Net loss for this year amounting to
Rs. 5266 lakh over Net profit of Rs. 930 lakh the preceding year. Net profit for others saw a steep decline.

Among the private players HDFC Ergo and Future Generalie showed increasing trend in Net loss while Net profit
figures of ICICI Lombard and Tata AIG were impacted largely. Underwriting loss for ICICI Lombard grew four times
this year which can be attributed to few major claims happening last year.

On the other hand despite aproximately three hundred percent increase in underwriting losses Bajaj Allianz managed
to show balancing Net Profit compared to last year. Encouragingly Royalsundaram and Reliance are the two players
shown positive results over last year. Royalsundaram’s net profit increased by over 20% from Rs. 471 lakh to Rs.566
lakh. Reliance General Insurance has shown major improvement as compared to their last year’s balance sheet.
Notonly the company managed to cut its underwriting loss by one third compared to last year the Net loss reported
this year has also reduced by two third. Considerably this is in view of no major loss in market share over preceding
year.

Among standalone health insurers Star health managed to report a Net profit of Rs. 124 lakh while results for Apollo
DKV were not so encouraging.

Results for specialised public sector insurers were encouraging. Against the overall market trend AIC and ECGC both
showed net profits of Rs. 23261 lakh and Rs. 28339 lakh respectively.

CLAIM EXPERIENCE

General insurance industry paid total of

Rs.1970257 lakh as claims this year up from last
years claims paid of Rs.1637112 lakh.*

Private players saw increase of around 45% in the

claims paid over the last year.

*Exclues standalone health insurers, AIC and ECGC

With Mega claims like the one at Indian Oil refinary in Rajisthan the overall claim experience of industry has
worsened than previous year with industry claim ratio increasing from 84.88% to 86.30%. Major loss making
portfolios were Marine and Health insurance.

Though the Health portfolio experience has improved over premvious year marine has been hit hard(Seems that the
pirates are having their impact on turbulent waters of marine insurance too ).

Private players were far better off than their public sector counterparts with managing to close the year with overall
claim ratio of 76.84% compared to 91.3% experienced by Public sector enterprises.
 1
Claim Ratio Statistics

Incurred Claims Ratios FY 2008-09

Private Sector Public Sector Total
Segment 2007-08 2008-09 2007-08 2008-09 2007-08 2008-09
Fire 72.28 75.86 50.69 74.97 68.69 75.72
Marine 82.68 101.05 100.32 109.02 86.68 102.90
Motor 104.76 98.90 71.95 75.64 92.31 88.84
Health 112.36 116.60 94.84 85.33 107.00 105.95
Others 54.13 52.69 46.03 59.11 52.51 54.15
Total 90.43 91.30 72.23 76.84 84.88 86.30

Third Party Administrators

TPAs were introduced by IRDA in accordance with The IRDA (TPA-Health Service) Regulations, 2001 to work as
intermediaries to play a crucial role in claim processing and allied services on behalf of insurers. The number of TPAs
have increased to 27 over the number of years and the quantum of business has also increased due to robust growth
of Health Insurance Industry.

This year two TPAs were granted license. Still the TPA body faces key issues with viability of business and challenge to
survival with minimal fees being paid to them. Slowly even insurance companies are also coming up with newer ways
to compensate TPAs like on per claim basis rather than as part of overall comission.

Trend of managing policy servicing operations in-house is growihg among insurers. If this grows there will be a
serious threat to the existance of TPA under current stringent guidelines they have to follow.

OPERATIONAL EFFICIENCYiii

With very thin operating margins to work with insurance companies have been trying to be as efficient as possible in
their operations. Some chose to ride on technology and state of the art IT applications to do it some engaged
consultants to combat rising costs and increase profitability.

Attached table shows the operational efficiency of major players in general insurance industry. It is surprising to see
New India Assurance company as most inneficient company among public sector players as it was the most efficient
in the group last year.

Among private players players with only 4+ years of experience has been shown here for appropriate analysis.
Interestingly IFFCO-TOKIO happens to be operationaly most efficient company among its peers followed by ICICI
lombard closely. It must be noted that IFFCO-TOKIO managed to improve the operational efficiency against industry
average showing different results.

1
Does not include standalone health insurers.
Operating Expense ratios of Major Non-Life Insurers

Operating Experience
Year 2008-09 2007-08
NATIONAL 22.11 22.40
NEW INDIA 26.41 19.31
ORIENTAL 23.07 21.63
UNITED India 24.11 24.40
PUBLIC - OVERALL 24.11 21.70
ROYAL SUNDARAM 27.33 25.11
RELIANCE 28.25 28.92
IFFCO-TOKIO 17.44 17.84
TATA AIG 32.92 29.54
ICICI LOMBARD 19.95 16.97
BAJAJ ALLIANZ 22.86 21.81
CHOLAMANDALAM 23.92 25.29
HDFC ERGO 31.69 33.58
PRIVATE -OVERALL 24.50

With innovative products and new processes being introduced by insurers overall general insurance industry in India
is bound to see new and interesting dimentions.

NOTE

1. Overall analysis and figures constituted in this report have been based on the IRDA report published for FY 2008-09. Places where
international comparison has been drawn data have been drawn from Swiss Re reports.

2. The IRDA report consists details of state wise geographical performance & presence of life insurers though its not the same for general
insurance industry.

i
Figures Exclude gross premium underwritten by 2 standalone health insurers, AIC, ECGC and National Reinsurer GIC.
ii
Health insurance premium here includes Star Health & Apollo DKV
iii
Only companies with minimum 4 years in operations have been taken into account.
 AMICUS ADVISORY ADIGI

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