Since the early liberalisation of India’s insurance sector during the early 2000s, the non-life (general) insurance segment has been characterised by a state of flux with high growth, huge potential and intense competition its prevailing themes. General insurance in India boasts assets under management (AUM) of INR1.23 trillion as at the financial year ended March 2013, which results from a compound annualised growth rate of 15.0% since 2003. This corresponds to a total gross direct premium of INR650.2 billion, representing 19.1% year-on-year growth. However, despite its rapid growth, India’s general insurance remains in relatively uncharted waters with a market penetration rate of 0.8% as at the financial year ended March 2012 compared to a global figure of 2.8%. Insurance density (measured by the premium per capita) remains similarly low at a mere USD10.50 during the same period compared to the global figure of USD283.00.

Given relatively late liberalisation of the insurance sector, the public sector remains the dominant provider of general insurance. Excluding specialised insurers (i.e. for agriculture and export credit), four public sector insurers (namely, the National Insurance Company Limited, The New India Assurance Company Limited, The Oriental Insurance Company Limited and the United India Insurance Company Limited) account for 46.8% of total AUM (or 68.0% including the sole national reinsurer, the General Insurance Corporation of India). However, private insurers have quickly gained a sizeable foothold on the general insurance industry, especially considering that they accounted for less than 10% of total general insurance AUM prior to 2007. Indeed, private insurers accounted for 43.0% of total general insurance gross direct premiums in 2013 (38.2% of net premium income) as the private sector saw strong growth in the motor vehicle insurance segment; motor vehicle insurance accounted for 47.1% of total gross direct premiums underwritten or 56.3% of total private sector gross direct premiums. Furthermore, signs of recovery in domestic motor vehicle sales (given mandatory motor vehicle insurance) in the quarter ended June 2014 may help drive further growth in general insurance premiums.

The growing presence of private insurers has, however, placed huge competitive pressures on the general insurance market. Regulatory changes – in particular, the de-tariffication of a broad range of general insurance product segments, have resulted in increased competitive pressures in the industry. Of note, while motor vehicle remains the industry’s largest source of premiums earned, limited increases in the regulated third party (TP) insurance rates for motor insurance and the associated high incurred claims ratio have placed further strain on insurance profitability. The overall motor insurance segment saw the incurred claims ratio go as high as 102.54% in 2011. The rates have since moderated to 87.06% in 2013, although the private sector has seen a motor insurance incurred claims ratio of approximately 92-94% during 2011-2013. However, changes in the regulatory environment appear to be promising with the Insurance Regulatory and Development Authority (IRDA) recently increasing the premiums on these third party motor insurance claims. A proposed limited liability clause may see further decline in the net insured claims ratio (though with an accompanying decline in the overall gross premium earned).

Low insurance density implies that there is much room for growth in the general insurance industry in India despite fierce competition. However, the challenge lies not just in traditional growth considerations (as implied by low insurance penetration), but in improving the delivery of general insurance products to end users. The increasing reach of general insurance offerings to include micro-insurance and health insurance has been a step in the right direction. Further opportunities may lie in capturing customers through increased financial awareness and catering to niche requirements.