The opening up of the Indian insurance market to private players, a little over five years ago, was heralded as a gold rush. This was despite government’s knee jerk approach to the liberalisation agenda and somewhat distorted roll out of events.

1. 50
Digest: India – a market to watch
The opening up of the Indian insurance market to private
players, a little over five years ago, was heralded as a gold
rush. This was despite government’s knee jerk approach
to the liberalisation agenda and somewhat distorted roll
out of events.
As a way of achieving liberalisation for the insurance
industry, the government constituted the Malhotra
Committee, which gave its recommendation way back in
1993. Thanks to political instability, successive
governments could not muster enough political support to
legislate these recommendations. It took six years to
finally win approval.
The recommendations were also diluted in view of
political expediency. The equity participation of foreign
partners, for example, was kept at 26%. It will now take a
while to build this figure back up to the originally
proposed 49%. The new law overlooked the provision for
brokers. It took another three years to make that happen.
Motor business was to lose its tariffs first but the changes
still keep being postponed. From the current single tariff,
for fire and engineering, there is a proposal to have an
internal tariff for each insurer. Health insurers and
reinsurers of foreign origin will be permitted but the entry
level, in terms of capital requirement, is considered very
high by all concerned and interested players.
Notwithstanding all this, private players have indeed
found their feet and carved a strong niche for themselves.
To understand where they are now headed for, one needs
to recognise some significant undercurrents and likely
trends. Needless to say, the main focus of this piece will
be non-life business.
Approximately, 70% of the premium underwritten in India
is regulated by tariffs. Motor, fire and engineering
dominate. Marine (cargo) was brought off controlled
pricing more than a decade ago. Most recently the tea
tariff ( which covers: A tea crop; B tea crop hail; C inland
and overseas transits of tea, including storage; D transits,
including storage for blending, processing, packing of
made tea) and marine (hull) tariffs were also ended. The
Insurance Regulatory and Development Authority (IRDA),
the insurance regulator, went back on its original plan to
lose tariffs on motor and property lines thereafter.
According to the latest announcements, pricing of
property lines will be decontrolled in January 2007.
As and when the motor portfolio is altered, it will only be
the own damage part of motor that will lose its tariff and
not the third party. Insurance companies are opposed to
this. Interestingly, India is now the only market that still
offers an unlimited third party bodily injury and death
cover, the pricing of which cannot be tinkered with. Any
attempts to do so has resulted in a reversal of plans in
face of paralysing strikes by the truckers, a very strong
political lobby. All this while the loss making motor
portfolio has been subsidised by the property segment.
The concerns, therefore, are not misplaced and all the
more so, in light of some recent developments.
• Rising catastrophe losses (increasing frequency and
severity of flood and earthquake perils) has eroded
the profitability of property business. Western parts
of the country, with the highest value concentrations,
have been the worst affected. The states of Gujarat
and Maharashtra are the most industrialised in the
country. Located on the western coast, they
represent highest values at risk because of
petrochemical industries and virtually the largest of
all other industries.
• “Mega Mania” (all industries with a sum insured in
excess of Rs100,000m or a PML exceeding Rs10,540m
are preferring to choose the comprehensive package
policy, popularly known as Mega Policy) in a move to
avoid tariff pricing and take advantage of lower
reinsurance driven international pricing and a wider
cover. In these cases the Indian insurers would retain
minimum and reinsure maximum portion. This
particularly applies to oil & energy business and large
infrastructure entities.
India – a market to watch
by Praveen Gupta
Praveen Gupta joined the Allianz AG representative office in 2000 as the general manager (business
development). He is the co-founder of Bajaj Allianz General Insurance Co Ltd. The second largest private sector
non-life insurer in India. He started his career with The New India Assurance Company Ltd 26 years ago and
has worked in diverse markets like Thailand, Hong Kong, UK and India. He has an MA (History) from St
Stephen's College, Delhi, is a Fellow of Chartered Insurance Institute and Chartered Insurer and has a Diploma
in direct marketing from the IDM (UK).

2. 51
Digest: India – a market to watch
• Any breaches in tariff are being used creatively to
bring down pricing. A higher category risk is
interpreted as a lower rated risk. Thereby managing a
price saving. Unfortunately, the TAC (Tariff Advisory
Committee), which prescribes and supposedly
enforces the ratings, lacks teeth. Breach of tariff is
also being seen by many as the natural demise of the
artificial pricing mechanism. International reinsurers
and brokers are apprehensive about the prospects.
Moreover, profitability is suffering from some insurers’
keenness to carry deductibles on their net account or offer
deductible buybacks hand-in-hand with low priced, high
deductible covers. The Indian customer is averse to any
deductibles and some insurers are indulging insureds
even at the cost of unduly exposing their bottom-line.
That motor can indeed be underwritten profitably has
been vindicated by some of the new insurance companies.
Private insurers such as Bajaj Allianz and Tata AIG have
been consistently managing their motor portfolios with a
less than 70% loss ratio. Thereby the COR is well below
100%. True, they started cautiously, concentrating on the
new private car segment. They were not allowed to
introduce any product differentiation but, thanks to some
significant service differentiators, they developed
innovations like: issuance of policy certificates at the point
of sale; cashless claims settlement; quick turnaround; and
time tested customer relationship management
techniques (leveraging on call centres and database
management/ customer engagement/ cross-selling).
The two most heavily competitive portfolios are health and
motor. The rising middle class; inflation in medical
expenses and demise of state sponsored primary
healthcare together have provided a fillip to health
insurance. And on the motor side, the buying power, easy
motor financing and rapidly increasing choice of
automobiles have all boosted the volumes in motor
insurance. This hand in hand with dipping property
premiums, likely to be triggered by its imminent loss of
tariffs, is expected to push the contribution of auto to
more than 50% of the non-life insurance pie.
While the new generation players compete for the private
motor car segment and make money on superior quality
service as well as cost efficient delivery, public sector
insurers bear the brunt of selection against them. The
story is no different in health and liability lines either. In
this, the state owned companies compete more vigorously
with each other rather than with the private players. Hence
the very rationale for four government companies may no
longer be valid.
The boost in IT Enabled Services has led to increased
demand for liability products such as crime; errors &
omissions; umbrella covers et al.
Directors & officers (D&O) is receiving a further thrust
thanks to the Clause 49 amendment to the Indian
Companies Act, which virtually makes a D&O cover
mandatory. Corporate governance is now high on the
government agenda and companies are becoming
increasingly board run. A stringent code of conduct; the
growing probity of audits and increasing responsibility of
senior management now makes them increasingly
vulnerable to any negligence of stakeholder interest, as
are overseas listings and acquisitions by Indian
corporates. Traditionally India is not a litigious society,
but the complex offshore exposures and contracts with
India based solution providers is pushing the demand for
liability insurance. With growing outsourcing into India –
thanks to IT enablement – there is a mushrooming of
business process outsourcing which is becoming more
complex by the day. Any negligence and criminal act of an
operative in India could make that entity vulnerable to
breach in contract vis-à-vis an overseas principal.
Health insurance tops it all – in the last five years the
health insurance portfolio in India has grown eight-fold.
According to some very optimistic estimates the potential
for this segment is as much as Rs400,000m. Even though
the health segment has grown 10 times since the opening
up of the market, critics believe that neither the regulator
nor the players are doing enough to realise the
expectations of the liberalisation agenda. There is a strong
case for standalone health insurance companies. Many
reputed international players decided not to jump in
because the capital requirement (Rs1000m – 74% to be
held by an Indian partner and 26% by a foreign partner)
was same as any other insurance company. There is once
again a case for a lower entry level for health insurance
companies (most likely Rs500m). In the meantime,
supported by funding from overseas Indian interest, a
pure health insurer (Star Health Insurance Company) is in
an advanced stage of entry – Bupa, Blue Cross and many
others are expected.
The growth of private medical infrastructure has been
significant. There is already a new phenomenon of
‘medical tourism’, where foreigners are travelling to
reputed centres of excellence for relatively low cost and
high quality treatment. Attempts at outsourcing hospital
tie-ups, customer care and record management have not
been very encouraging. Poor performance by third party
administrators used by insurers has led to a serious
rethink. One of the players has even resorted to in-house
health administration. The growth and well-being of the
health segment depends upon how soon the industry gets
its act right and puts in place a highly reliable and
customer focused infrastructure.
With more than 1m general insurance agents, 200-plus
brokers, more than 36 bancassurance tie-ups and ever
evolving forms of affinity marketing – the Indian
marketplace is buzzing with intermediation. The new
insurers were disadvantaged, vis-à-vis the public sector
insurers, in not having countrywide branch networks.
Thanks to these distribution platforms and the web-
enabled products, reach is no longer an issue. The
opening up of the insurance market is indeed attracting
entrepreneurs. According to latest IRDA reports, private
non-life insurers have already captured 26% of the

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Digest: India – a market to watch
market-share. Nowhere in the world have green-field
insurers grown so rapidly in a newly opened economy.
Indian private companies with identical partners have
most to gain in the form of synergies (Allianz and AIG both
have a life and non-life company with a common partner
for both businesses). For every 1% of GDP growth, life
business is expected to grow by 4%. It is anyone’s guess
as to how much it will grow with the economy growing at
7% to 8%, annually. This may hold true for the health
segment as well. Cross-selling and up-selling between the
companies through a common agency force is expected to
reap a rich harvest. Pension funds business has been kept
out of purview of the IRDA. Originally pension funds
business was to be supervised by the IRDA. However, a
separate regulator has been created – The Pension Fund
Regulatory and Development Authority (PFRDA). There is
an ongoing debate on the case for a super regulator on
the lines of the UK’s Financial Services Authority. Perhaps
circumstances are heading in
that direction.
If there is a dearth of anything at all, it is the human
capital. In the early days the private players poached staff
from the public sector companies. The latter then
introduced a Voluntary Retirement Scheme (VRS) which
further depleted a productive resource pool. With virtually
no fresh recruitment, leadership issues and intensifying
competition – the PSU (public sector) insurers are forced
to engage professional intermediaries. PSU insurers have
a vast network and most business was sold direct. But,
with high staff attrition, their reach and degree of
customer interaction has been considerably eroded.
Unlike the private insurers who use, say brokers for
acquisition of new business, they use them more as a
retention strategy. Some staff from the new insurers have
begun to move to brokers who were the last to come in
after a much desired amendment to the Insurance Act.
The challenge, therefore, is to hasten the development of
fresh human resource. Insurers and some of the top
brokers are recruiting management trainees from
business schools. Insurance Institute of India’s diplomas
earn cross credits from the Chartered Insurance Institute
(UK) and CPCU.
Local risk management courses also have international
tie-ups. While the insurance fraternity may have begun to
lure young managers to embark upon a career path, the
youngsters are in an exciting job market. There is always
someone in the BFSI (banking, financial services and
insurance) sector willing to improve their salaries, which
is a major ongoing concern for the cost conscious. This
will get further heated when the equity share of foreign
partners rises from 26% to 49%, which will only bring in
more interested players. Multinational BPO companies
pay very lucrative salaries and provide good quality
working environments. Many young people working for
insurance companies are getting lured by BPOs. The churn
is expected to become greater when more foreign insurers
enter the Indian market, likely to happen in the next
12 months.
In conclusion, despite all the initial delays and barriers,
the Indian insurance marketplace has exceeded
expectations. More and more participants are getting
drawn in. Private players already have more than a
quarter of the market share. On the non-life side there
may be a skewed growth towards health and motor lines;
there are also deficiencies in both product and service
distribution; loss of tariffs will only make insurance
cheaper and hence more affordable. Perhaps a way
forward is to increase the penetration and per capita
spend. Today all insurers have huge technology spends.
One of the ways to reduce cost is to minimise human
interface and bring efficiencies using powerful technology.
Internet sales and insurance kiosks are in a modest way
beginning to produce a small transformation. Web
enabled products allow customers and partners to be self
reliant for documentation. There is speed and minimal
bureaucracy. Any cost saving in this process can be
passed on to the customer. And thanks to high quality
service standards set by the rest of financial services,
good quality customer care, as well. Hopefully, this would
only help fulfil the Indian customer’s penchant for value
for money. India is definitely a market to be watched in
the times to come.

4. 53
Digest: India – a market to watch
Royal Sundaram JV OF Sundaram and RSA, UK
Tata-AIG JV OF Tata and AIG, US
Reliance General 100% formed by Reliance Industries, India
IFFCO-Tokio JV of Iffco and Tokio Marine, Japan
ICICI-lombard JV of ICICI and Fairfax Group, Canada
Bajaj Allianz JV of Bajaj and Allianz, Germany
HDFC CHUBB JV of HDFC and Chubb, US
Cholamandalam JV of Cholamandalam and Mitsui, Japan
Private sector insurers Conversion
1 crore 10 million
1 lakh 100 thousand
1 USD Rs45
1 Euro Rs58
1 Pound Rs80
Insurer Premium 2005-06 Premium 2004-05 Market share up to
August, 2005
Growth over the corresponding
period of previous year
Up to the month Up to the month
Royal Sundaram 19,020.00 13,131.00 2.17 44.85
TATA-AIG 25,330.37 21,132.28 2.89 19.87
Reliance General 6,609.82 7,364.89 0.75 -10.25
IFFCO-Tokio 35,037.57 20,233.39 4.00 73.17
ICICI-lombard 70,454.83 33,736.03 8.04 108.84
Bajaj Allianz 53,863.69 32,740.79 6.15 64.52
HDFC Chubb 7,765.68 6,666.83 0.89 16.48
Cholamandalam 10,708.12 7,529.33 1.22 42.22
New India 187,646.00 170,786.00 21.41 9.87
National 149,950.19 157,883.55 17.11 -5.02
United India 138,964.00 135,620.00 17.11 -5.02
Oriental 149,209.00 133,675.00 17.02 11.62
ECGC 21,941.44 19,980.38 2.50 9.81
Private Total 228,790.08 142,534.54 26.10 60.52
Public Total 647,710.63 617,944.93 73.90 4.82
Grand Total 876,500.71 760,479.47 100.00 15.26
Sl No. Insurer Fire Misc Marine Total premium
in India
Total premium including
business outside India
1 National 515.77 2688.15 187.18 3391.10 3399.97
2 New India 775.20 3011.27 259.21 4045.68 4921.47
3 Oriental 524.00 2089.18 218.93 2832.11 2899.74
4 United India 631.32 2136.73 300.14 3068.19 3063.47
5 ECGC 445.49 445.49 445.49
6 AIC * 369.21 369.21 369.21
Sub-Total 2446.29 10740.03 965.46 14151.78 15099.35
6 Royal Sundaram 50.53 193.85 13.38 257.76 257.76
7 Reliance 46.37 101.49 13.19 161.05 161.05
8 Iffco-Tokio 142.89 154.86 24.49 322.24 322.24
9 TATA AIG 78.45 234.18 30.89 343.52 343.52
10 ICICI Lombard 239.46 203.68 43.59 486.73 486.73
11 Bajaj Allianz 120.29 335.51 20.73 476.53 476.53
12 Cholamandalam 25.45 65.77 5.83 97.05 97.05
13 HDFC-Chubb 0.37 112.58 112.95 112.95
Sub-Total 703.81 1401.92 152.10 2257.83 2257.83
Grand Total 3150.10 12141.95 1117.56 16409.61 17357.18
Progress report – India non-life
Gross premium underwritten up to the month of August, 2005
* Agriculture Insurance Company of India Limited (AIC)
Public sector insurers
The New India Assurance Company Limited
National Insurance Company Limited
United India Insurance Company Limited
The Oriental Insurance Company Limited
Export Credit Guarantee Corporation Limited
Source: IRDA website