Rising premium growth and recent reforms undertaken by the central government would help strengthen the profitability of Indian insurance companies.

According to Mohammed Ali Londe, Vice President – Financial Institutions Group, Moody’s Investors Service, increased awareness regarding the need for insurance among customers and higher demand is likely to augur well for insurers as they can look at increasing premium prices.

“There is a big shift in consumer attitude to health insurance. Because of awareness of health risks, customers are asking for more holistic health covers. This gives insurers the opportunity to devise and price products catering to those needs and that will continue to drive growth,” Mohammed told BusinessLine.

When there is saturation in the market, companies tend to grow by either reducing prices or cutting down on the number of products they are offering. But when there is demand and awareness, insurers can remodel and reprice the products.

While there will be a set of customers who would be looking at more sophisticated and additional covers due to the increasing awareness, there will be another set entering the segment for the first time and looking at plain vanilla products. This would give insurance companies the scope to spread out risks and price their products accordingly.

Premiums see growth

Total premiums grew 9 per cent in the first nine months of FY21, slightly ahead of the 8.6 per cent increase in FY20, with general insurance premiums (including health) increasing by around 11 per cent and life new business premiums rising 7 per cent. Robust premium growth is positive for Indian insurers’ profitability, which is currently weak because of persistently low prices and the rising cost of claims.

However, rising premiums and prices, in turn, will help insurers absorb higher claims, which pushed the average net loss ratio for general insurers to 95 per cent in the first three months of FY21 from 81 per cent in the previous year.

In anticipation of profitable growth opportunities, 20 of India’s 34 general insurers and four of its 24 life insurers raised capital in FY20. Insurers will continue such transactions in the coming months, which will improve the Indian insurance sector’s capital adequacy and financial flexibility, he said.

Growth in GDP to provide support

India’s post-pandemic recovery will sustain the growth in insurance premiums, improving profitability amid favorable government reforms to the state-owned insurance sector.

“India’s economy has been expanding for sometime. In the first year of the pandemic, i.e. the year ended March 2021, there was a decline in real GDP but recovery is underway and we are expecting 9.3 per cent for the year ended March 2022. That is a driver for growth,” he said.

Meanwhile, the government’s plans to recapitalise India’s dominant State-owned insurers and list the country’s biggest insurer, Life Insurance Corporation of India (LIC), on the stock market will encourage a more disciplined approach to underwriting in the respective general and life insurance sectors. This will pave the way for price increases across the market, further supporting insurers’ profitability, he added.

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