 "Insurance in India has made significant strides: General insurance CEOs")
Managing directors and chief executive officers (MDs and CEOs) of general insurance companies gathered at the Business Standard BFSI Insight Summit, 2024, to discuss ‘many challenges’ they face. Anuj Tyagi, MD & CEO of HDFC Ergo General Insurance Company, Anup Rau, MD & CEO of Future Generali India Insurance, Animesh Das, MD & CEO of ACKO General Insurance, gave their views on the road ahead for the industry. Edited excerpts:
What needs to be done to increase penetration in the insurance sector?
Tyagi: Insurance penetration in India has made significant strides in recent years, but there’s still much to be done. The regulator has already introduced pivotal changes, starting with giving insurers the freedom to design bespoke products. Earlier, the same products were offered in both urban and rural markets, limiting relevance and accessibility. Now, insurers have the flexibility to create customised solutions tailored to specific demographics and regions.
The distribution framework has also evolved. Many companies now leverage advanced digital tools, and the regulator’s ‘Insurance for All by 2047’ vision has allocated states to specific insurance companies. Additionally, initiatives like the Bima Trinity (Bima Sugam, Bima Vahak and Bima Lokpal) are set to revolutionise the landscape. For example, Bima Vahak empowers women to sell small-ticket, relevant and comprehensive insurance products using digital tools, bringing services directly to customers. This localised, technology-driven model ensures better outreach and faster transactions.
We are already seeing progress. Insurance companies are investing in new offices, recruiting Bima Vahaks and developing region-specific strategies. These efforts are expected to show significant results in the near future, transforming the penetration landscape.
Rau: While significant progress has been made, it is important to reexamine how we measure insurance penetration. Traditionally, penetration is assessed as premiums as a percentage of GDP (gross domestic product). However, this metric doesn’t capture the full picture. From FY14 to FY23, India’s population grew by around 10 per cent but the number of new insurance policies tripled in the same period. Despite this, the average premium size grew by only 1.3 per cent annually. This suggests that while more people are being covered, the total value of coverage — the quantum of cover — may have increased significantly.
Take motor and crop insurance as examples. Motor insurance rates have remained stagnant, while crop insurance rates have dropped in recent years. So, while the premium-to-GDP metric suggests low penetration, the actual coverage and reach may have expanded substantially.
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This is similar to how telecom penetration is assessed. Indian tariffs are among the lowest globally but telecom usage and penetration are robust, indicating that revenue is not the best indicator of market reach. Similarly, in insurance, we should focus more on coverage metrics rather than just premiums.
Das: The insurance industry is on a transformative journey, with the aim of covering the entire Indian population by 2047. This requires significant innovation, particularly in digital distribution.
By 2047, decision-makers at home will predominantly be individuals born in the digital era. This highlights the need for the insurance sector to integrate technology not just for efficiency but as a core strategy. While banking and telecom have taken the lead, the insurance industry is catching up, with many companies already leveraging digital frameworks.
In addition to ongoing initiatives like state-level insurance plans and streamlined product approvals, the focus should shift to sharper, tech-enabled strategies to engage millennials and Gen Z. These emerging audiences demand convenience, transparency, and relevance, which can be addressed through digital-first approaches.
Overall, while foundational steps like regulatory reforms and distribution enhancements have set the stage, the next leap requires embracing digital transformation to reach new audiences effectively.
By when can the non-life insurance premium reach Rs 11 trillion?
Rau: Over the last decade, the industry has grown at a CAGR (compound annual growth rate) of around 12.5 per cent. From the current premium of Rs 2.9 trillion, reaching Rs 11 trillion would require doubling twice. At a 14-15 per cent CAGR, this could happen within a decade.
However, with initiatives like the Bima Trinity (and state-level allocation plans), the timeline can be accelerated. For example, the state-level allocation has prompted companies to expand into underserved regions like Sikkim. With sustained innovation and adoption, we could potentially achieve this target in about seven years, provided annual growth hits 20 per cent CAGR at some point. While growth may not be linear, the ecosystem’s digital transformation could trigger an exponential leap in the coming years.
Will the Bima Trinity help reduce distribution costs?
Tyagi: The Bima Trinity, particularly Bima Sugam, should reduce distribution costs. However, cost reduction was not its primary objective. The platform aims to make insurance more accessible, transparent, and user-friendly. Think of it as the ‘Amazon of insurance,’ bringing buyers, sellers, service providers, and distributors onto one platform.
This unprecedented level of transparency will drive efficiency. Customers will clearly understand costs, and distributors will benefit from economies of scale. While distribution cost reduction will likely occur as a by-product, the primary goal remains improving accessibility and transparency.
After Covid, we have seen significant growth in health insurance policies and premiums. However, affordability remains a major concern. What strategies can we implement to make health insurance more affordable?
Das: One key strategy is bringing transparency to the process. Another important aspect is improving the efficiency of distribution. When distribution becomes more efficient, it leads to cost savings, which in turn enhances the economic viability of both the insurance companies and the entire ecosystem. These savings can then be passed on to consumers, making the product more affordable. As we open up distribution channels and use more efficient methods to reach consumers, we can expect this shift globally.
For markets where insurance penetration is already decent, the focus should be on optimising product offerings. The health insurance sector, as well as other product lines, is still evolving. There is room for distribution growth, and efficiency is catching up. As this happens, insurers will be able to create more affordable products.
From our experience as a relatively new player in retail health insurance, we’ve seen that distributing products directly to consumers helps improve efficiency, which allows us to offer simpler, more affordable products. Customisation is another key focus, creating products that are tailored to specific needs rather than adopting a one-size-fits-all approach. Leaders in the industry are already moving in this direction, creating data-driven, customisable products that further improve affordability.
On the regulatory side, it is important to create products that are not only convenient for consumers at the time of purchase but also when it comes to claims. Sharp underwriting practices help reduce fraud and prevent leakages, which contributes to overall savings and ensures that the benefits are passed on to genuine policyholders. Efficiency across all these areas is crucial for improving affordability.
There is a lot of discussion around Goods and Services Tax rates, particularly whether a reduction in GST will make health insurance more affordable. Will insurers pass on the benefits to customers?
Tyagi: If we’re talking about health insurance, a reduction in GST would make policies more attractive, as they would appear more affordable. However, this is just one element of the bigger picture. To address the broader issue of affordability, there are several factors at play.
First, the majority of people in India don’t have individual health insurance policies. The question is, at what age do customers typically buy insurance? Our population is aging, and the likelihood of illness increases with age. As we have more young people entering the insurance market, the premiums will naturally come down.
Despite the increase in medical inflation, insurance companies must price their products appropriately to ensure customers feel secure. Lowering GST would make health insurance appear more affordable, but it's a long-term process. Awareness campaigns and simplifying insurance products are also important steps to ensure that more people opt for coverage.
For senior citizens, there have already been some amendments in tax policy, which will certainly make health insurance more affordable for them.
What’s your prescription for making health insurance more affordable?
Rau: I think accessibility has been addressed with a range of initiatives, including regulatory changes. However, when we discuss affordability, we should consider how India compares to the rest of the world. Health insurance premiums in India are among the cheapest globally. The perception that premiums are unaffordable often doesn't reflect the reality of the market.
That said, there are several ways to make health insurance more affordable. One major factor is the GST. Currently, GST collected from health insurance policies is used by the government to fund state-level insurance plans. The question we need to address is whether it would be more effective to remove GST and enhance private sector penetration, which would likely lead to better affordability.
Ultimately, removing GST could be a more effective way to increase insurance penetration than relying on state-provided insurance. A reduction in GST, which is currently 18 per cent, would have a significant impact on affordability. This benefit would certainly be passed on to the customer.
Das: The first impression for the consumer is influenced by the cost. For instance, if an insurance premium is Rs 25,000, and the GST is reduced, say, from 18 per cent to 12 per cent or 5 per cent, the landing cost for the consumer drops to Rs 23,000 or less. This reduction makes the premium appear more affordable, as the immediate price difference of a couple of thousand rupees can significantly impact the consumer’s perception. This affordability factor plays a key role in influencing purchasing decisions. Additionally, there’s an ongoing discussion around value-added services, with insurance companies actively making representations on this front to further enhance the overall appeal of insurance products.