Written by: Trevor Lloyd-Jones, Content Manager, LexisNexis Risk Solutions

Although on the way to becoming a huge market in terms of international comparison, India’s life insurance market is still at an early stage, with approximately 3% penetration.

Judging by some recent reports, the sector is continuing to show all the signs of extraordinary growth in the years ahead, based on the fact that the risk coverage of the Indian consumer is still very low (even by emerging market standards).

The combined effect of the expanding middle class, improved digital services and government stimulus measures has meant that India’s life insurance sector is the biggest in the world with about 360 million policies. It is expected to increase at a Compound Annual Growth Rate (CAGR) of 12% to 15% over the next five years. The insurance industry plans to hike penetration levels to 5% of the population by 2020.

Figures published by the India Brand Equity Foundation show that for the period April 2015 to March 2016, the life insurance industry recorded new premium income of Rs 1.38 trillion (US$ 20.5 billion), indicating an annualized growth rate of 22.5%.

By comparison, for the same period the general insurance sector registered growth in direct premium underwritten of Rs 105.25 billion (US$ 1.55 billion) indicating growth of 12.0%.

India’s total insurance market is expected to quadruple in size over the next ten years from its current size of US$ 60 billion.

Yet despite such positive growth forecasts, some of the bright spots are quite illusory for insurers in the life sector who tend to compete by building scale at the expense of profits, with large agency sales forces and high fixed costs. Meanwhile returns are being delivered that are below their counterparts in other parts of Asia.

A recent report* has helped to shine the spotlight some of the new directions life insurers can take to identify high growth strategies, and high-growth geographies within India, to make the most of the new opportunities.

So how can life insurers deliver on the promise of valuable growth in the years ahead? How can they build on the risk skills and the data channels necessary for the new challenges? There’s a need to expand capabilities in agencies and lower costs. Sales forces in India range from the rare professional teams serving the more affluent market to the ubiquitous part-time sales people who concentrate on the mass market.

In summary, opportunities in the India economy for insurance will be highest in mid-sized cities such as Kochi, Nagpur, Vadodara, Visakhapatnam and Surat – even greater than the emerging markets in major cities like Mumbai and Delhi.

We believe there is an opportunity for insurers to more closely prioritise their target markets, to focus on the right markets and the right selection of risk segments – the ‘granularity of growth’ – and in so doing align their agency strategy accordingly.

Indian consumers are becoming more digital, crossing boundaries seamlessly in their decision-making. Data enrichment and cloud computing meanwhile, are opening up opportunities for insurers to keep a grip on exposure management at the centre, without getting in the way of what local operations are doing.

There is a big opportunity for insurers to reinvent their relationships with customers and distributors using digital tools and analytics. This is a common challenge that we see around the world at LexisNexis in the markets we serve. But nowhere is this more important than in India, where digital distribution has the potential to shift the market away from the dominance of bancassurance products (currently delivering 56% of private-sector life policies), to cut out distribution costs and to make advances across the digital value chain: sales, to product design, pricing, risk selection to claims and service.

The Indian insurance market is a huge business opportunity waiting to be harnessed. India currently accounts for less than 1.5% of the world’s total insurance premiums and about 2.0% of the world’s life insurance premiums despite being the second most populous nation. The country is the fifteenth largest insurance market in the world in terms of premium volume, and has the potential to grow exponentially in the coming years.

*McKinsey report ‘The Life Journey India’

Follow the link to the LexisNexis Risk Solutions India website to find out more about how we support insurers.

Follow these links to read more about specific solutions for life insurancehealth insurance and motor insurance.

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