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Insurers are well positioned to benefit from strong domestic economic growth

Sept 18, 2018

Latest regulatory reforms in India have improved the ability of Indian primary insurers to take advantage of the country's strong economic growth, a credit positive for the sector, says Moody's Investors Service in its first published report on the Indian insurance market.

"Regulations introduced since 2015 have facilitated the access of the insurers to capital and reinsurance cover, while encouraging them to improve the quality of their investment assets and reserve adequacy," said Mr Mohammed Ali Londe, a Moody's Assistant Vice President and Analyst.

"These developments will gradually allow Indian insurers to reap greater benefits from India's strong economic expansion and to increase take-up of insurance from current low levels," he said.

Moody's conclusions are contained in its report , "Insurance -- India, Developing regulatory landscape and strong economy supportive for insurers", released yesterday.

Moody's expects the non-life insurance sector to maintain its double-digit growth over the next 3-4 years, supported by the expectation that India's (Baa2, Stable) real GDP will expand by 6.7% in the fiscal year ending 31 March 2018. Furthermore, annual insurance premium penetration remains comparatively low in India at just 3.5% of GDP, and is likely to increase in line with household spending.

In the year to March 2017, the top 10 Indian non-life insurers reported 30% growth in gross written premiums to INR1,009.3 billion (US$15.6 billion) whilst their top five life counterparts reported a 14% increase in GWP to INR3,740.8 billion. Regulatory reforms are also improving the sector's access to capital. For example, in 2015, the IRDAI raised the maximum stake that foreign investors can hold in Indian insurers to 49% from 26%. The regulator has also made it easier for Indian insurers to launch initial public offerings (IPOs) and for state-owned insurers to privatise, leading to six IPOs over the past 14 months and a further three expected in 2018.

Moody's also says that reinsurance liberalisation will benefit the non-life sector. In 2017 the IRDAI admitted eight private reinsurers to the Indian market, which had previously been dominated by the state-owned General Insurance Corporation of India. The arrival of major global reinsurers will improve Indian insurers' access to reinsurance, supporting their management of underwriting risk. This should also help gradually reverse a recent deterioration in the non-life sector's underwriting performance due to rising claims expenses. Moreover, asset quality and reserving will strengthen.

Regulatory risk-based capital (RBC) rules scheduled to take effect in the fiscal year ending March 2021 will encourage insurers to adopt eligibility criteria for their investment assets that will improve the quality of their investment portfolios.

Separate rules requiring insurers to adopt external actuarial reserving assessments, expected to take effect from March 2018, will likely increase reserving requirements for some in the short-term, putting their profitability under pressure. However, in the longer term, Moody's expect the actuarial reserving to strengthen reserve adequacy and improve pricing discipline, leading to stronger underwriting results.

Source: Asia Insurance Review

Supreme Court steps in again to crack down on uninsured vehicles

Sept 17, 2018

The Supreme Court yesterday ordered all states to amend Motor Accident Claims Tribunal (MACT) rules to make it mandatory to auction uninsured vehicles involved in an accident and transmit the proceeds to the victim or his beneficiaries.

The court directed all the states to implement the rule within 12 weeks. Currently this rule is applicable only in Delhi, reports Zee News.

The MACT awards compensation to beneficiaries after determining issues like income of the deceased, the deduction to be made towards personal living expenses, and the multiplier to be applied with reference to the age of the deceased.

Last month, the IRDAI made long-term third party insurance policy mandatory following a Supreme Court order requiring all general insurance companies to issue a three-year third party (TP) insurance cover for new cars and five-year TP insurance cover for new two-wheelers as a separate product or as part of a comprehensive insurance product.

IRDAI said that after the introduction of long-term motor TP insurance, an insured should be given two options -- long-term package cover offering both motor TP insurance and own damage insurance for three years or five years as the case may be or a bundled cover with a 3/5 year term for the TP liability component and a one-year term for own damage cover.

Regulator looking into telematics for motor insurance

Meanwhile, IRDAI chairman Subhash Khuntia has said that the regulator is going through a report on telematics, that is expected to be finalised by next March, with the technology expected to motivate drivers to drive better.

Currently, motor insurance in India is being priced based on parameters, such as the model of the vehicle, capacity, and geographical use, reports ENS. But in actuality, there are various other parameters to be considered in the assessment of risks that a vehicle is exposed to, such as upkeep of the vehicle, how frequently it is driven, what distance it is driven for, the quality of roads it is driven, the driving habits of driver and so on.

Consideration of these factors will lead to a more meaningful risk assessment and provide a more accurate mechanism for pricing, said Mr Khuntia.

Source: Asia Insurance Review

Supreme court stays IRDAI circular on genetic disorder claims

Sept 12, 2018

IRDAI has put on hold its circular on genetic disorder claims following a stay order by the Supreme Court of India.

On 27 August 2018, the Supreme Court, while hearing a special leave petition (civil), granted a stay on the operation of a Delhi High Court judgement that held that the exclusionary clause related to 'genetic disorders' in insurance policies is too broad, ambiguous and discriminatory and in violation of Article 14 of the Constitution dealing with right to equality.

The IRDAI, following the Delhi High Court judgement in February this year, had issued a circular on 19 March to all insurers with regards to rejection of claims related to 'genetic disorder'.

A fresh circular issued by IRDAI on 5 September 2018 states that, "In view of...stay granted by the Hon'ble Supreme Court of India, Circular (of March 19, 2018) stands abated until further orders."

The Delhi High Court had directed IRDAI to have a re-look at the exclusion clauses in the insurance contracts to ensure that claims are not rejected on the basis of exclusions relating to genetic disorders like cardiac conditions, high blood pressure and diabetes. Following the order of the Delhi High Court, the regulator directed insurers ‘not to include’ genetic disorders as one of the exclusions in new health insurance policies issued in respect of all their existing health insurance products and also in the new products.

Source: Asia Insurance Review

Postal service to set up insurance company in 2 years' time

Sept 11, 2018

India Post, the department of postal services, is working to set up an insurance company. India’s federal communications minister Manoj Sinha told Press Trust of India, "Department of Posts is now reincarnating itself. After diversifying its business with a parcel directorate and a payments bank, the department has decided to set up an insurance firm as a special business unit in two years."

"The request for a proposal to appoint a consultant for setting up an insurance unit will be floated in the coming week," he said.

If the proposal of India Post to set up an insurance company is realised, it could transform India’s insurance scene because of the trust and credibility India Post enjoys in the country especially in rural areas. The Department's manpower and vast reach would be other advantages.

India Post has an army of 300,000 postmen and 'Grameen Dak Sewaks' (rural postal employees) who, aided by digital technology, are delivering financial services for the India Post Payments Bank (IPPB) which was inaugurated by Prime Minister Narendra Modi on 1 September 2018.

IPPB, which will be available through 650 branches and 3,250 access points immediately, will be available at all 155,000 post offices by December 2018.

Insurance will not be a new area of business for the India Post. It currently offers one of the oldest life insurance schemes in India for the benefit of government and semi-government employees—Postal Life Insurance (PLI) which was introduced in 1884. In addition, Rural Postal Life Insurance (RPLI), introduced in March 1995, provides insurance cover to people residing in rural areas.

As at 31 March 2017, there were 4.68m PLI and 14.68m RPLI policies across the country.

Mr Sinha early this year also announced the opening of PLI to professionals as well, which has led to a surge in PLI revenue. "The entire postal department is transforming now," he said.

Source: Asia Insurance Review

Govt's plan to provide universal health coverage to offer opportunities to insurers

Sept 07, 2018

The launch of universal health coverage is credit positive for India's insurers because it will help grow health premiums and provide insurers with cross-selling and servicing opportunities, according to Moody's Investors Service.

An article in yesterday's edition of Moody’s Credit Outlook notes that on 15 August, Indian Prime Minister Narendra Modi announced that the Ayushman Bharat, or National Health Protection Mission (ABNHBM), will launch on 25 September 2018. The AB-NHBM aims to provide more than 100m families up to INR500,000 ($7,100) of health insurance coverage each year and total INR50trn of coverage in aggregate.

However, 23 of India's 29 states have chosen to run the scheme as a trust model, which will diminish insurers' growth prospects.

Trust models entail government funds being allocated to a trust fund rather than to insurance premiums, and the trust fund making disbursements for claims, rather than insurers disbursing claims. When the trust fund is depleted, the government will need to provide additional funds. This differs from the insurance model, under which the premiums paid would be the maximum limit of exposure for the government and insurers take on all of the coverage risk.

States can chose a hybrid model wherein there is insurance protection purchased for claims in excess of particular limits. “As a result, we expect that health insurance premiums will increase, albeit by only INR100bn for the additional coverage of 100m families (approximately 500m people). This is much lower than the current INR304bn of coverage for 440m.

Health insurance contributes around 23% of general insurance premiums and is one of the main drivers of growth for insurers. Health premiums have grown at a compound annual growth rate of 18% during the 2012-17 fiscal years. The fiscal year in India ends on 31 March.

“When the Indian government first announced AB-NHBM as part of the 2018 budget as a move towards universal health, we had expected that premium growth would accelerate as the government sought to expand healthcare coverage to India's 1.32 billion population. As of fiscal 2017, only 440m people were covered, and we expect that AB-NHBM will increase that number by 500m,” the report said.

Under the insurance model ,the increased coverage would have resulted in significant growth opportunities for insurers over the next two to three years, particularly for large healthcare and general insurers. Large insurers would have been able to benefit from their scale, resulting from superior claims management, strong provider networks and capacity to cross-sell other products.

“Although providing the health coverage as a trust model will diminish insurers' growth prospects, we still expect that insurers with scale advantages and track records of managing large insurance schemes will benefit from the health programme. Additionally, the programme will provide these insurers with opportunities to cross-sell other products and services to this new customer base,” the report added.

The writers of the report were Mr Mohammed Ali Londe, AVP-Analyst, Mr Antonello Aquino, Associate Managing Director, and Ms Sally Yim, Associate Managing Director, all three from the Financial Institutions Group of Moody's Investors Service.

Source: Asia Insurance Review

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