According to ICRA the Indian general insurance industry is going through a challenging period following de-tariffing of most segments since January 2007. With price-based competition being intense in the post de-tariffed scenario, concern for market share is likely to override price discipline in the industry in the near term.
While earlier, private players were growing largely at the expense of the incumbent public sector entities, more recently, there has been a churn in market share among the private sector players as well. Overall however, with the top eight players accounting for 92% of the total business, the industry remains fairly concentrated by international standards.
According to ICRA scale remains important for long term sustainability. Hence, if some of the private players who currently have just a marginal market presence were to acquire market share, competitive pressures in the industry would increase further.
ICRA notes that expenses for business acquisition have been on the rise because of the intense competition prevailing in the industry. With growth shifting towards retail lines, private players are incurring higher initial expenditure in expanding their networks.
Over the medium term, ICRA expects the fight for market share to move towards service quality and transparency, which in turn would allow the industry to focus on sustainable attributes like service quality, and product- and risk-based pricing.
ICRA believes the long term business outlook for the industry is positive, given the currently low levels of penetration, especially in retail lines. In the short to medium term however, competitive pressures are likely to have a significant impact on profitability and capital requirements for business.
ICRA's rating approach for private players takes into account, among several other factors, the financial strength of the promoters, especially since most private players need regular capital infusion to sustain growth. With most of the private entities being joint ventures, balancing the shareholding and business objectives of the partners while infusing capital can be a challenge. Further, pressures on profitability, as in the current environment, may create additional challenges for capital support.
Overall, ICRA derives comfort from the strong regulatory oversight on underwriting practices and capitalisation levels that characterises the Indian general insurance industry.
