From Promise to Performance: India's insurance sector is poised for growth

The insurance sector has significantly raised its investment in technology in recent years.

By Shubhra Goel           

India’s insurance sector has long been characterised by high potential, underpinned by a large and underpenetrated population. However, its performance has been moderate at best, due to factors such as low awareness and financial literacy, product complexity or relevance, strict regulatory standards, slow pace of technological adoption and generally poor affordability.

In its current phase, however, a convergence of favourable factors may have led the sector to an inflection point.

Rising per capita GDP: India’s per capita GDP is expected to rise significantly, by almost $2,000, to reach about $4,730 by 2029.

Proactive regulatory measures: The Insurance Regulatory and Development Authority of India (IRDAI) is balancing the twin agenda of facilitating sector growth with policyholders’ protection. Upcoming regulations are expected to augment growth.

Evolution of (Digital Public Infrastructure) DPI: From the launch of Aadhar in 2009, DPI in India has come a long way, especially with UPI showing significant success in rural and semi urban areas.

Innovative work by market participants: Insurance market participants are rising to the challenge with investments and innovations across product, distribution and technology to digitise and modernise the sector.

Key sector initiatives and factors necessary for their success:

Bima Trinity initiatives: The Bima Vahak – Bima Vistaar initiatives are particularly interesting for their potential to enhance rural coverage exponentially. The schemes aim to have Bima Vahaks (a women-centric distribution force) deployed to all 250,000 Gram Panchayats across India with specific coverage targets for lead insurers for each state. However, their success will depend on effective training, product design, and technology usage. The success of Bima Sugam, will be contingent on its customer experience design combined with robust technology infrastructure.

Increase in FDI limit: The rise in the foreign direct investment cap to 100 percent will boost market expansion. However, more clarity is needed on the fair market value or ‘FMV’ clause under the Foreign Exchange Management Act regulations for foreign players to find market entry more attractive.

Lower capital requirements for new entrants based on business scale:  Currently, the minimum capital requirement for setting up an insurance company in India is Rs 100 crore. This move will allow market entry for smaller, niche, more specialised players in the market. However, it is important to balance sector growth with stability and to protect the customer’s interest. In this case, therefore, IRDAI must build robust frameworks to conduct stress tests on the business models of potential entrants and ensure that corporate governance requirements are adhered to, to have continuous regulatory oversight.

Composite licenses: Allowing all insurance purchases under one roof will significantly improve customer convenience, potentially improving efficiency and making market participants more profitable. But the success of this move will hinge on a clear and simple regulatory framework and guidelines to manage associated risks.

Technology-led transformation:

The insurance sector has significantly raised its investment in technology in recent years with almost all large market participants making large investments. Most recently, LIC reported earmarking Rs 600 crore for its digital shift. However, businesses will have to embed digitisation and technology as a part of their core business strategy for sustained transformation.

Product hyper-personalisation:

In an increasingly digital, data-driven world, companies are building product strategies to allow for tailor-made or hyper-personalised products rather than the traditional ‘one-size-fits-all’ approach. Insurers, though, will need to build customer trust to collect data about their needs and preferences. They will also need digital and technological capabilities to create and offer data-backed products and be able to distribute them efficiently to right segments at the right price.

The road ahead

With the right foundational blocks in place and increased regulatory clarity, the industry is now uniquely positioned for growth. The regulator has shown its willingness to act as a partner and a facilitator for the industry to help achieve its vision of ‘Insurance for all by 2047’. While this goal is ambitious, the recent actions of the industry inspire much confidence that they will be able to rise to mee this challenge. Achieving this goal will be a monumental achievement for India, providing much-needed protection for its masses and paving the way for a more secure and prosperous future.

(Shubhra Goel, Managing Director, at Alvarez & Marsal.)

Views are personal and do not represent the stand of this publication.