Friday, May 2, 2014

Evolution of Indian Insurance Industry

While historians sell what happened yesterday, Insurance companies sell what might happen tomorrow. Some of them even go to an extent to say that insurance companies sell fear! Intrigued by this we decided to get some more in-depth insights on the Insurance industry and decide for ourselves what it is all about. Hence we invited Mr Mohan Babu  , Associate Vice President and Global Head of Insurance Practice  Infosys Technologies ltd .He was very excited to grace this occasion and started the session  by discussing about the evolution of Indian Insurance Industry wherein he said the first law to regulate the life Insurance business was enacted in 1912 which continued for a while, these were small Insurance companies and they were not able to maintain solvency, which resulted in a curtailed settlement of claims, hence only around 50% of the claims were getting settled. Therefore around 245 Indian and foreign insurers and provident societies were taken over by the Central Government and were nationalized to form the Life Insurance Corporation. From 1972-1998 the government expected to increase the penetration and density of the insurance industry, but the insurance companies were not able to cover it effectively & efficiently and a slackness creeped in over a period of time. To break this, the Insurance Industry was opened up with limited liberalization of upto 26% FII. There was a lack of regulatory activism or supervision till 2000, when the IRDA bill was passed in this year to regulate better.
He then discussed the key regulations and the impact that was seen over a period of 14 years right from 1999 and 2013.Mr Babu believed, this was a Golden period for the Indian Insurance Industry where it started moving in the direction of maturity. Right from the clearance of the IRDA bill which initiated the liberalization of the sector to the increase in FDI in Insurance industry to 49%, which led to greater under-writing capability in the Insurance markets , each of these regulations have helped the industry in one way or the other.
We were then introduced to the different sub-segments under the broader business segments of Life insurance and General Insurance was then discussed. Mr Mohan Babu took the pains to explain in detail the Life-Insurance Industry Market sizes in terms of the density and penetration, comparing the figures for the emerging markets and the advanced markets covering many countries. India with an Insurance density of 59 USD and penetration of 4.10% stood 15th in the world in the year 2001. The total life insurance premium stands at $53.6 billion in 2011-2012, registering a negative growth of 1.57% from the previous financial years with a total of 24 Life Insurance Companies as of September 2012, with LIC being the sole public sector representative among the lot. Whereas in terms of Non-Life Insurance companies ,  there are 27 of them as of September 2012, including 4 standalone health insurance companies with the Gross Direct Premium stood at $9.79 billion in 2011-2012, registering a growth of 24.19%, as compared to a global premium growth of 1.9% in 2011.
We then tried to brainstorm on the differences in the approach between the emerging markets and the advanced markets in the Non life Insurance industry, with many students pitching their own points on how developed nations like the United States use the pay per use method to calculate the premium which is enabled because of the technology and product innovations , effective distribution channels ,better regulations and minimized frauds.With loads of data , be it the official figures which he discussed in detail or the immense experience that he has by working in this sector for so long, Mr Mohan Babu then began discussing the SWOT analysis of the Indian Insurance market, which gave a clear understanding on where the Industry stands today and what needs to be done in the future to have a sustained growth. One more interesting point that he made was the key trends that were seen in the Indian Insurance Industry such as the Emergence of New Distribution channels, Launch of Innovative products and mounting focus on embedded value over profitability.
On the whole Mr Mohan Babu believes that this industry is still untapped and there are a lot of opportunities. Rapid development in Tier II and Tier III cities and growth in new bankable households have led to the emergence of a large insurable class with an appetite for sophisticated life insurance products. Increasing life expectancy, favorable savings, and greater employment in the private sector and the opening of the pension market with the passing of the PFRDA Bill 2011 has enabled opportunities in the Low-income Urban class including the Pension and Annuity Markets. He also gave us some idea on the future areas of investment such as Mobile Solutions, especially for claims management, multichannel integration capabilities alternative delivery models, including business process outsourcing (BPO) ,business process utility(BPU) and software as a service(SaaS)
Then the floor was open to questions where the students did try to question Mr Babu on the various happenings and the topics discussed by him. In the process of answering all these questions Mr Babu elucidated on the various roles available in the industry for budding managers, the Techniques, skills, and abilities required to excel in this chosen area of profession. We hope to make use of this session as well to the maximum extent by equipping ourselves with these necessary skills over a period of time.

Class of 2015

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