A year of coronavirus, consolidation and claims for non-life insurers

The year 2020 will go down for the Indian non-life insurance sector as a year of coronavirus that resulted in large scale digital embracement and increased health insurance spread, reduced overall business, industry consolidation, large losses, said senior industry officials.

At a time when the private sector is witnessing mergers and acquisitions, the central government scrapped its earlier plan to merge National Insurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company Ltd into one.

"Some things that were building up at the start of the year have been blunted by the pandemic: the growth in the 5th largest economy in the world; the '$5 Trillion GDP (gross domestic product) by 2025' forecast; a 14-15 per cent growth forecast for the general insurance sector as a consequence and as a subset of the economy; an important position for India in the Asia-Pacific as the main," Sharad Mathur, Managing Director & CEO, Universal Sompo General Insurance Company Ltd told IANS.

The company is a joint venture of Indian Bank, Indian Overseas Bank, Karnataka Bank, Dabur Investments Corporation and Sompo Japan Insurance Inc. "Some trends have been accentuated and fast-tracked were technology and digitalisation," Mathur added. Giving a different take on that Asthana said: "Much has been spoken about the accelerated adoption of digital and the continued use of digital means for transacting financial services including insurance in the future as well."

"However, continued adoption of digital in insurance is hampered by a general lack of trust in insurance companies when it comes to paying claims and the general apathy of consumers towards buying insurance," he added. He said this has been the reason that digital has not been able to penetrate the insurance process as much as it has done in other financial services like banking, mutual funds or participation in equity markets. Policyholders believe that they need hand holding when it comes to managing claims.

"However, the need for lesser than earlier face to face interaction and social distancing will remain with us. This leads us to the hypothesis that insurance companies will have to work on this problem in a two-step process. First to guide and make insurance intermediaries adept at using digital means to transact and second to rebuild the trust in insurance companies claims capabilities. Insurance companies will have to reorient their operation model in a new "phydigital" world of insurance," Asthana said.

According to Mathur, the low points for the sector in 2020 are: a flat growth of 1.11 per cent till October, 2020 - out from the horrors of negative growth till Q1. Multi-line general insurers still at a negative growth of 1.68 per cent till Oct/2020; the marginal growth of 1.68% for the overall industry due to GWP (gross written premium) growth rates of the specialised insurers [Agriculture, Health, Exports]; change in the business mix; motor for the first time in history ceasing to be the highest contributor to the pie because of sluggish growth of the auto sector; high growth in health insurance claims outgo largely due to the pandemic.

"Apart from Covid-19 increasing the number of health insurance claims and the ticket size, there has also been natural catastrophes in different parts of the country with unseasonal hail and rain in Delhi during the lockdown, Amphan cyclone in West Bengal, Nisarga cyclone in Maharashtra, Hyderabad floods and now the cyclone hitting Tamil Nadu. All these will lead to higher claims in motor and property insurance," Shanai Ghosh, Executive Director & CEO, Edelweiss General Insurance told IANS.

"The gas leak at the LG Polymers plant in Andhra Pradesh, boiler explosion at Yashashvi Raasayan Private Limited at Dahej, Gujarat and the oiler explosions at Neyveli Lignite Corporation's thermal power plant in Tamil Nadu," added Mathur. On coronavirus impact on the general insurers Mathur said motor insurance, the major premium contributor witnessed a significant decline during this period as not many vehicles were sold in Q1 and the GWP was generally from the renewal of premium from existing policies.

"The entire automobile sector was already subdued in 2019-2020 and the lockdown and virtual stoppage of business had aggravated the situation. Several challenges like lack of purchase of new vehicles and claim surveying haunted the sector," he said. Further, the customary increase in premium rates for motor third party cover not happening this year also has contributed to the fall of motor insurance premiums.

"Commercial premiums overall, particularly fire, have not been impacted much and registered a growth in FY 21. The major segments impacted are travel and marine (cargo) business for Universal Sompo and for the industry," Mathur said. Industry officials are of the view that with the Covid-19 pandemic still evolving, it is difficult to predict the extent of impact on the sector. While the business lost cannot be recovered, coming back to the pre-Corona growth rates should happen by Q3 of FY22.

"In general, the level of uncertainty has been elevated substantially and this is going to make consumers very careful about what they spend. Frugality and spending for prioritised needs will be the new norm. For insurers this implies the need to repackage products to reduce premiums and create more contextual products - which will create a pull and move the ecosystem away from a push model of selling," Roopam Asthana, CEO and the Whole Time Director, Liberty General Insurance Ltd told IANS.

On the regulatory measures Asthana said: "The regulator, IRDAI (Insurance Regulatory and Development Authority of India), has taken several efforts to ease customers' misery and provide a seamless experience during such a tough time." Asthana said the IRDAI has taken series of regulatory steps as regards health insurance like: extension of dates for policy renewal; asking all hospitals to provide cashless payment; insurers to collect premium in instalments; standardisation of all exclusions in health insurance; directing health and general insurers to include telemedicine as part of claim settlement of policy.

"IRDAI's measures have helped the insurance industry evolve faster and stronger with customer centricity and servicing at the core of all its measures," Asthana added. "The Sandbox initiative by IRDAI is also a welcome and progressive move. It is a great opportunity to provide innovative, relevant and meaningful solutions to address evolving customer needs, especially in the current situation," Edelweiss General Ghosh said.

The three officials were unanimous in saying that consolidation would happen in the sector. "Acquisitions are becoming a strategic business route. Increased fundraising activity in the sector is an indicator of growth and scale of business. Some recent developments on this front include Paytm acquiring Raheja QBE, HDFC Ergo acquiring Apollo Munich, Sachin Bansal buying DHFL General Insurance and the merger of ICICI Lombard and Bharti Axa General," Ghosh said.

According to Mathur, world over post opening up of the insurance sector, there is mush-rooming proliferation of players. "The next phase is characterised by merger and acquisition, by consolidation. The process usually starts in 6-8 years after opening up. It has not happened in India in the sense that it is already two decades of liberalization and M & As in a big way have not taken place. It only means that the trends have been slow in cooking and are building up. Hence, the pace of M & As should pick up," Mathur said.

Source: Business Standard