Motor cover is industry millstone, says S&P

Standard & Poor's (S&P) on Monday said the underwriting performance of India's non-life insurance industry will continue to be weak as the motor vehicles business continues to have a poor run.

The weakness would, however, be partly offset by growth momentum in the health insurance business, the global rating agency said in its report "Asia Pacific Insurance Outlook 2006-07".

It said the Mumbai floods are not expected to adversely affect the non-life insurers' profitability, as the insurers had reinsured a high proportion of their risks.

Furthermore, independent measures taken by companies (such as rebalancing portfolios, improving claims settlement and better expense control) could be expected to further reduce underwriting losses.

The report said Indian life insurance as well as non-life insurance businesses have the lowest penetration rate, with only 0.65 per cent and 2.35 per cent penetration at the end of March 2005.

The report said the country's life insurance sector is driven by the growing middle class, rising disposable incomes and underpenetrated nature of the market.

The Indian life insurance market is dominated by state owned Life Insurance Corporation of India (LIC), with its market share falling to 65 per cent in 2005 from 74 per cent in 2004 and the 14 private players increasing their market share to 26 per cent in 2005-06.

The increased market share is due to the ability of the new companies to introduce new and innovative products and services such as unit-linked policies with enhanced product features and premium payment flexibility, group non-single premium policies and the utilisation of the bancassurance channel to distribute insurance products.

The non-life insurance business is shared by four big state-owned companies (72 per cent at March end) and eight private-sector companies (28 per cent).

Despite the non-life industry overall registering underwriting losses , private players reported a marginal underwriting profit in 2004-05.