The specificities of the Indian insurance market

Capitalization of insurance companies in India

Insurance and reinsurance companies under Indian law and foreign reinsurance branches are registered with IRDAI.

The minimum share capital authorized is set at :

• 1 billion INR (14.3 million USD) for life and non-life insurance companies, and Stand-Alone health Insurers (SAHI).
• 2 billion INR (28.7 million USD) for reinsurers.
• 1 billion INR (14.3 million USD) for reinsurance branches of foreign groups.

The Indian insurance market opening

Kept closed for a long time to foreign capital, India has introduced a series of reforms with a view to boosting the economy, especially the insurance market.

In 2000, the regulator stepped in to reduce legislative constraints and promote the arrival of Indian and foreign private investors. Allowable foreign direct investments (FDI) was then set at 26% of the capital of an Indian insurance company. In 2015, a new directive revised this ceiling upwards from 26% to 49%.

These measures have revitalized the slow market, boosting investment by foreign insurers keen on settling in a country endowed with great a development potential.

Consequently, several foreign players raised their stakes from 26% to 49%. These are namely:

• British Bupa in the health insurance company Max Bupa,
• French AXA in Bharti AXA,
• Australian Group QBE in Rabeja QBE,
• AIA group, based in Hong Kong, in Tata AIA Life.

Insurance companies from the private sector had, therefore, received approximately 300 billion INR (3.64 billion USD) in foreign direct investment.

This policy of market opening is likely to witness a new development as the Indian government is currently contemplating the possibility of raising allowable direct foreign investment from 49% to 74% [5].

An ever evolving and modern regulatory framework

In an effort to upgrade the market and raise it to international standards, the Indian authorities never hesitated to profoundly overhaul the 1938 regulatory framework, which has accelerated the reform pace particularly in recent years.

Recent reforms

• 2015 Amendment Act: the 2015 Act raised the level of foreign direct investments (FDI) in Indian insurance companies and intermediaries. It also authorized foreign companies to set up reinsurance branches.
• 2017 Directive: This Directive governs and regulates investments of private investment funds in Indian insurance companies.
• Update of IRDAI’s 2017 regulations (Protection of insured’s interests): Amendments to the legislation governing the relationship between the insured and the insurers. The new provision sheds more light on the contract content in order to protect the insured’s interests.
• 2019 Reforms: Amendments to the 2015 and 2018 legislation governing the business of insurance intermediaries, with foreigners authorized to detain a 100% stake of a brokerage company.
• Update of the 2019 legislation: introduction of management platforms in health insurance.

Circulars, notices and amendments are regularly published with the aim of upgrading the insurance business, allowing the use of new technologies at the level of intermediation and product marketing.

India: Merger-acquisition operations between insurers

Recent reforms have indeed contributed to the presence of foreign players in the country but they have mainly accelerated corporate alliances, with a significant increase in the volume of merger-acquisition operations in the insurance field during the recent years as follows:

• Merger between Bharti AXA general Insurance and ICICI Lombard in July 2020 for the amount of 614.5 million USD,
• Acquisition in February 2019, by the Belgian Ageas, of 40% of the non-life insurer Royal Sundaram General Insurance for the total amount of 209 million USD,
• The potential merger among three State-owned insurance companies: National Insurance, Oriental Insurance and United India Insurance, a move temporarily interrupted due to the health crisis.

Development of microinsurance in India

IRDAI defines microinsurance as a life or a non-life coverage whose insured capital in life, health, stock mortality and personal accident is comprised between a minimum of 5 000 INR (70 USD) and 50 000 INR (700 USD).

Microinsurance has been designed for low-income households, especially those whose income is below 250 INR (3.6 USD) a day. This kind of product is gathering momentum in the country’s remote regions, thus providing people with the possibility to underwrite low-cost cover. In India, nearly 80% of the population lives in rural areas.

Democratization of insurance policies in India

The use of smartphones and access to 4G networks have greatly promoted insurance policy underwriting. Packages are designed at affordable tariffs while purchases are made through customized and secure mobile applications.

Moreover, artificial intelligence and new technologies have considerably improved the operational mode of insurance companies and intermediaries.

The emergence of Indian insurtechs

Thanks to its IT culture, India has relentlessly embarked on an insurance technological revolution.

The country stands as an insurtech hub in Asia through:

• Innovative ideas,
• Cutting edge analysis tools,
• The availability of a substantial customer database,
• The emergence of new models,
• The introduction of new insurance coverages based on recent technological innovations.

That is how more and more solutions have been developed by Indian insurtechs whose number has grown steadily. The funds provided to these startups has equally risen considerably since 2017. In the first half of 2020, the funds allocated to Indian insurtechs amounted to 203 million USD.

The most innovative Insurtechs are Acko that has a portfolio of 40 million customers and Policy Bazaar that sells one million insurance policies per month.

Demographic factor and insurance development in India

The Indian demographic environment is prone to the development of insurance in view of:

• The emergence of a middle class whose living standards have been improving,
• The presence of a substantial young and insurable population,
• The awareness about the need for protection and about the interest in saving and retirement schemes.