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The insurance sector in India is in transition. The sector, which till 2000, was controlled by public sector companies, now has several private players. Insurance contracts that do not come under the ambit of life insurance are called general insurance. Its prominent forms are health, fire, marine, motor, and accident insurance. According to lastest estimates, there are 35 general insurance companies and nine foreign reinsurers operating in India.

As per the Insurance Regulatory and Development Authority of India (IRDAI), the gross premium underwritten for and up to the month of September, 2019, has witnessed a growth of 16.84% over the corresponding period of the previous fiscal and the penetration of non-life insurance sector in the country has gone up from 0.56% in 2001 to 0.93% in 2017; but there is a flipside as well.

The penetration of non-life insurance in India is one of the lowest. The global penetration average for the non-life insurance sector for 2017 was 2.8% whereas according to IRDAI data, the penetration of the non-life insurance sector in India was 0.93% for 2017.

Growth in non-life insurance

As per the IRDAI figures, the sector seems to have beaten the present economic slump in India momentarily. But many market insiders claim that the non-life insurance segment will be hampered if the economic downturn continues in India. According to K.K. Srinivasan, former member, IRDAI, “In general insurance, in my view, the spurt is primarily because of two reasons: the increase in motor third party insurance rate and the hefty spot penalties by traffic police as per the new Motor Vehicles Act for failure to possess vehicle insurance.”

According to IRDAI Annual Report, 2017-18, “The general insurance industry including standalone health insurers underwrote total direct premium of Rs 150662 crores in India for the year 2017-18 as against Rs 128128 crores in 2016-17, registering a growth rate of 17.59%.”

The report also states, “The general insurers (excluding standalone health insurers) underwrote 1707.71 lakh policies in 2017-18 fiscal against 1542.63 lakh policies underwritten in 2016-17 fiscal, reporting an increase of 10.7% during 2017-18 fiscal.

During 2017-18, the total profit after tax (PAT) of the general insurance industry was Rs 6909 crore as against a profit of Rs 845 crore in 2016-17 fiscal. The public sector companies reported a PAT of Rs 2543 crore against a loss of Rs 2551 crore in 2016-17 fiscal. The private sector insurers reported a PAT of Rs 3798 crores against a PAT of Rs 2763 crore in 2016-17 fiscal and specialised insurers have reported `670 crore PAT against a PAT of Rs 606 crores in 2016-17 fiscal.”

How to increase penetration of general insurance

Though life insurance is still largely considered the most important component of insurance, the Indian market is slowly warming up to general insurance. There is need to work on the perspective towards general insurance and raise awareness. Additionally, there is a direct co-relation between growth of the economy and penetration of insurance. It cannot be ignored that people opt for insurance only after generating assets that they are worried about losing.

The increased penetration of the non-life insurance segment is coming in tandem with the growth of private players. Innovative value-added products and serious attempts to make the claim process easy and expedient, are propelling this growth. According to IRDAI figures for 2017-18 fiscal, public sector insurers in the non-life segment recorded a 5.8% decrease in the number of policies issued. On the other hand, private players recorded a 26.1% growth in the same fiscal. The share of the market controlled by public insurers is also contracting each year.

Technological progress and increased digital penetration

have helped the non-life insurance segment. These have enabled insurers to simplify their offerings and address the queries of customers better. Additionally, rising preferences towards private health solutions and its spiralling cost are making a large number of customers take to health insurance, which is a prominent contributor in the non-life insurance segment.

Sector specific overview of certain prominent non-life insurance segments are given below:

Health Insurance

The health insurance market witnessed a robust double digit growth of 24% in the 2017 fiscal, with a market share of around 24% of the entire non-life insurance sector. It has been the fastest growing market segment, registering a compound annual growth rate (CAGR) of 23% for the past 10 years.

According to the Insurance Regulatory and Development Authority of India’s (IRDAI’s) Annual Report 2017-18, the market share of health segment has increased to 27.86% from 26.95% of previous year. The report also states, “The premium collection in health segment continued to surge ahead at Rs 41981 crores in 2017-18 from Rs 34527 crores of 2016-17, registering growth of 21.59%.”

The launch of the National Health Protection Scheme under Ayushman Bharat, in September 2018, in order to provide coverage of up to Rs 500,000 to more than 100 million vulnerable families holds heavy expectations. If implemented efficiently, it can increase the penetration of health insurance in India from nearly 34% to 50%.

The Indian health insurance market is considered a sunrise sector with strong private players like Reliance Health entering the fray. Innovative products such as specific insurance plans for senior citizens and children can give a strong push to the segment. Additionally, private players are increasingly designing health insurance products that cater to specific consumer requirements. The recent relaxations on Foreign Direct Investment (FDI) inflow into the Indian market are also aiding the segment.

The Indian health insurance segment can be classified into three categories - government sponsored health insurance, group health insurance (other than government sponsored), and individual health insurance. According to IRDAI’s Annual Report of 2017-18, the share of group business was the highest at 48%, followed by individual business (41%) and government business (11%).”

The growth in the insurance segment can be evaluated from the fact that during 2017-18, the general and health insurance companies have issued around 1.47 crore health insurance policies (excl. policies issued under PA & travel insurance) covering a total of 48.20 crore lives and registered a growth of 10% in number of lives covered over the previous year. In terms of the number of lives covered, three-fourth of the lives were covered under government-sponsored health insurance schemes.

Motor Insurance

Motor insurance in India provides accident cover for individual owners of the vehicle and for passengers and third party legal liability. It is a compulsory requirement for all new vehicles used for commercial or personal reasons. The insurance companies have tie-ups with leading automobile manufacturers.

A motor premium is determined by a number of factors and the amount of premium increases with the rise in the price of the vehicle. The claims of the motor insurance in India can be accidental, theft claims or third party claims.

According to the Annual Report of Insurance Regulatory and Development Authority for 2017-18, insurance penetration in the motor sector was recorded as 100%. Motor insurance continued to be the largest general insurance segment with a share of 39.32%. It reported a growth rate of 17.90%.

Sukanta Mukherjee, General Manager, Mukesh Hyundai, told BE, “In September 2018, IRDA introduced that for four wheelers at least one year comprehensive own liability premium and three years third party insurance is compulsory. The change in condition of three years third party insurance for four wheelers and five years third party insurance for two wheelers in place of one year increases the premium rates while purchasing.”

There are different types of motor insurance in the segment like private car insurance, two wheeler insurance, commercial vehicle insurance, and third-party insurance. Third-party insurance cover is mandatory in India under the Motor Vehicles Act, 1988. This cover cannot be used for personal damages. This is offered at low premiums and allows for third party claims under ‘no fault liability’. The premium is calculated through the rates provided by the Tariff Advisory Committee, a branch of the IRDA.

The motor insurance sector has suffered from lack of renewal of comprehensive premium by the vehicle owners in the past. Will the recently passed Motor Vehicle (Amendment) Act 2019 and the new rules passed by the IRDA in 2018 help to solve the problem? According to officials, the new rules will not only improve the renewal rate but can impact to boost the growth of the insurance sector.

Anurag Rastogi, Chief Actuary & Chief Underwriting Officer, HDFC ERGO General Insurance, told BE, “The Motor Vehicles (Amendment) Act, 2019 aims at increasing road safety by building deterrent penalties for traffic violations. This increased road safety means lesser accidents resulting in fewer vehicle damage and bodily injury claims. In medium to long term, the benefit of these reduced claims should pass on to motor insurance buyers in terms of lesser premiums.” According to Rastogi this will help to solve the complaints related to third party insurance cover. He added, “With the likelihood of reduction of uninsured vehicles on the Indian road due to strict implementation of the new MV Act across the country, we expect that the third party premium rates may start stabilising in a few years from now.”

Fire and Building Insurance

A fire insurance policy covers for losses that are caused by fire. It is a contract made between the insurer and the provider of the insurance service in case of destruction of or damage to property or goods, caused by fire, during a specified period. The contract specifies the maximum amount, agreed to by the parties at the time of the contract, which the insured can claim in case of loss. This amount is not, however, the measure of the loss. There are different types of fire insurance policies varying from covering the loss up to a specific amount which is less than the real value of the property to  ‘all in one’ policies which covers risks like fire, theft, burglary, third party risks and others. It may also cover loss of profits during the period the business remains closed due to fire.

Building insurance is an insurance policy that covers the financial cost of repairing damage to the physical structure of a property in the event of damage or theft. According to Rastogi, “Home Insurance provides cover for the building (structure) and contents within the home or the premises against fire, natural calamities and other risks. Normally, burglary is a separate cover, which some insurers may offer as a package along with a standard fire and allied perils insurance policy. Some of the covers that home owners must be aware of are storm/tempest/flood and inundation cover, riots/strike/malicious damages, impact damage by third party vehicles and animals, lightning strikes, landslide/rockslides, burglary & housebreaking cover.” There are often limits to what kind of damage is included in these insurance policies.

Although it is essential to buy an insurance cover with a home loan, it is not mandatory to purchase home loan protection plans. According to sources from United India Insurance Company, “Neither the law nor the regulatory bodies such as RBI or IRDAI have made the purchase of home loan protection plan with a loan mandatory. It is advisable to purchase one with home loans.” Even in case of commercial insurance, it is not mandatory to have insurance for businesses. Commercial insurance offers solutions to commercial entities including industrial sectors. These solutions aim to offer a safety net for business operations and assets when the need arises. Common commercial insurance types include property, workers and liability compensation.

The IRDA’s Annual Report 2017-18 has estimated the premium collection from fire insurance to have increased by 13.03% in that fiscal in comparison to 9.24% increase in the previous fiscal. The insurance penetration in the fire and building sector was recorded to be at 49%. The sources from United India Insurance associated lack of awareness to the low penetration in the insurance segment. With 300% increase in cases of fire incidents in commercial buildings in recent years, the sector needs better marketing of their policies to attract purchasers.

Crop Insurance

Indian agricultural production is highly exposed to the vagaries of nature. The majority of Indian farmers are small and marginal who do not have the capacity to face the fluctuations in the agricultural market. Hence, the need for agricultural insurance to protect the men behind the plough. According to National Insurance Academy’s Srinivasan, only about 35% of the Indian farmers are covered now and the intention of the government is to increase it to 50% by 2020.

The Indian government has introduced various agricultural insurance schemes all over the country. The Pradhan Mantri Fasal Bima was launched by the government on February 13, 2016. It offers a uniform premium of only 2% to be paid by farmers for Kharif crops and 1.5% for Rabi crops. The premium for annual commercial and horticultural crops is 5%.

Dr. Malabika Roy, Head of the Department, Department of Economics, Jadavpur University, told BE, “Any insurance requires the break-even, which means the premium should cover the cost of the insurance. However, agricultural loss is very much unpredictable. A major problem of loss adjustment relating to agricultural insurance is the calculation of loss. Crop insurance was previously calculated on the basis of average yield. But there were some disadvantages of this method. If rainfall is considered as the determinative factor of the loss, that is also confusing. The production depends on many factors like land location, fertility etc.  Now to calculate agricultural loss, the average yield method is being reinitiated but the process is more improved now. Modern devises like drones are now used to measure agricultural loss.”

Dr. Roy pointed out another major problem in agricultural insurance coverage, “The farmers who have ‘parcha’ (rayat farmers and land owners), only they fall under crop insurance. But the share croppers, who do not own ‘parcha’ and who are the major part of the agricultural population, are not covered under crop insurance. Something should be devised to cover their income loss. The income of the share croppers somehow must be protected.”   

Cargo Insurance

Cargo insurance provides coverage against all risks of physical loss or damage to freight during the shipment from any external cause during shipping, whether by land, sea or air. Also, known as freight insurance, it covers transits carried out in water, air, road, rail, registered post parcel, and courier. Cargo insurance is important in international trade. Statistics show that one insurance claim is filed for every four international shipments. According to IUMI Stats 2018, premium income for global marine cargo underwriting reached $16.1 billion, a 6% increase on 2017, representing real growth in volumes. Global marine insurance premiums reached $28.5 billion in 2017 and noted a 2% increase. This upswing was largely attributable to growth in trade in addition to the strengthening of European and other currencies against the US dollar.

Cargo insurance can be taken for international as well as domestic transportation. At the same time, this is really difficult to standardise and control without the proper cooperation from countries and states due to the varying nature of this insurance in different economies. Under these variations, this insurance can be categorised into following classifications like land cargo insurance (coverage for all the land transportations) and marine cargo insurance (covers transportation carried our either in sea or by air). Under these insurances, the policies included are Open Cover Cargo Policies, Specific Cargo Policies and Contingency Insurance Policy.  

According to the National Civil Aviation Policy, India targets to reach 10 million tonnes of cargo volume by 2027. As per data maintained by the Airports Authority of India (AAI), air freight handled at Indian airports grew by more than 20 times from 0.08 million metric tonnes in 1972-73 to 2.5 million tonnes in 2014-15, and its compound annual growth rate (CAGR) was 8.8% during the period between 2013-14 and 2016-17. The above said growth in air cargo volume had a positive impact on the rate of growth in overall cargo insurance.

Livestock Insurance

The Livestock Insurance Policy is provided for the sum insured or the market value of the animal at the time of death, whichever is less. Animals are normally insured up to 100% of their market value. The General Insurance Corporation of India (GIC) implements various cattle insurance programmes. The following insurances are covered under the head of livestock insurance: Cattle Insurance Sheep / Goat Insurance, Pig Insurance, Camel Insurance, Elephant Insurance, Horse/Pony/Mule/Donkey/Yak Insurance, Rabbit Insurance, Pet Dog Insurance, Bleed Insurance, and Stock Insurance.