The fall and rise of the insurance industry
Industry analysis of the Indian insurance sector
You may or may not buy an insurance policy, but you should really consider buying insurance stocks. Why? you may ask. Read up!
According to S&P Global Market Intelligence data, India is the second-largest insurance technology market in Asia-Pacific.
India has 57 insurance companies: 24 in the life insurance business, while 34 are non-life insurers. Life Insurance Corporation (LIC) is the sole public sector company and the industry in the country is expected to increase by 14-15% annually for the next 3-5 years.
Until May 2021, premiums from new businesses of life insurance companies in India stood at US$ 3 billion and gross direct premium of non-life insurance companies rose 11.4% on a yearly basis to 1.6 billion.
Insurance is a security used to transfer risk from the general population to insurance companies, who assume higher risk management. Companies pool the risk of various people in order to compensate a few who face the insured uncertainty.
The insurers have to make sure that the premium collected is enough to honour their obligations and thus have to gauge risk and price their policies accordingly. Their aim is to keep expanding the risk pool alongside maintaining a steady profit.
The major challenge here is marketing since people fear talking about ill health, death and about their inability to compensate their family in uncertain times. Existing banks have an advantage as they can leverage their clientele, but pure insurers have also come up with ways to market their policies with investment linked schemes that partially offer to invest in debt products, investment trusts, etc.
Also, March is a good time of the year for such companies since many people are looking to reduce their tax obligations through investing in such products.
Insurance was a state owned industry till a decade ago, with LIC leading from the front offering life insurance whereas other PSUs provided general insurance. However in 2000, in the support of the globalization program of the government, this sector gained momentum with the entry of the private sector. Private players brought in better offers and an overall more convenient experience for the consumer. The then 26% allowance of foreign capital is now raised to 74%, improving the scope for this industry.
Then came the pandemic, which plagued the insurance business as well. Though people realised the utility of policies, most of them succumbed to shrinking income and couldn't afford one.
The distribution channel was wretched with agents not able to pay personal visits to potential customers, 0 walk-ins and most had trouble conducting business on laptops and phones.
To top it all, the number of claims kept on increasing with hardly no room for the companies to wiggle it away.
The sector was doomed, pretty much like the others.
The insurers realised the importance of being more prudent and that so many claims were unhealthy for any company. Most of them revised their risk underwriting guidelines and they started capping the maximum cover for groups of people. So even though business has increased, enterprises are being more careful about the profile of their customers that determines the level of risk they are taking on.
Gladly, things did seem to pan out as positively predicted. Lockdowns started opening up and as soon as people started earning, they made insurance a priority, especially health. From being a push product, it went on to what is now called a "nudge product", where people just needed the right distribution channels, as they were already convinced on buying, even health and single premium ones.
This time has given rise to many innovative ways companies are reaching customers, especially digitally, leveraging the data available online and we can see many digi-based insurance and fintech startups coming to the surface.
In fact, companies did pretty well as against the previous year, due to growing awareness of the need for protection and a more serious approach to retirement planning. According to Business Standard, "6 standalone private sector health insurance companies registered a jump of 66.6% in their gross premium at Rs 1,406.64 crore (US$ 191.84 million) in May 2021, as against Rs. 844.13 crore (US$ 115.12 million) earlier."
The best time to invest in insurance stocks was during Covid, but it's better late than never and the given sector is in a booming period, where you can make decent returns if you start investing.
We suggest you beat on the best in the business, them being HDFC Life, SBI Life and ICICI Prudential. Here's a comparison:
Analyst recommendations for the same:
Still excited about IPOs? There are some coming here too, like
* Star Health, the largest standalone private health insurer that holds a market share of 15.8% in the health insurance market in 2021.
* Life Insurance Corporation, the largest life insurer in India, is expected to raise Rs 1 lakh crores in one of India's most anticipated IPOs.
In a nutshell,
The insurance industry has bounced back from the pandemic like no other and things seem to go upward for a while, with digitization coming in, though convincing people about the utility of an insurance will continue to remain a challenge.