Insurance industry in financial calamity


31 Aug 2016

Private insurance players struggling to make profits

According to media reports, the future of the Indian insurance industry doesn't look bright.

People today are not accepting insurance as one of the preferred instruments for savings.

The slow acceptance of insurance as an essential protection against unexpected incidents that could leave them in financial distress is also a contributing factor.

Not many private players in the insurance industry are making profits.


The growth of the insurance sector is decreasing

The growth of the insurance sector is decreasing

Even after high foreign direct investments for about a decade and private players' participation in the industry since 2000, several businesses in the sector are running in losses.

Once considered an unexplored market with less than 30% of the population insured, the industry is now facing an uncertain future.

During 2000-08, the sector grew 35% but later plummeted to 6-8% growth.

Unit-Linked Insurance Plans

The insurance industry's growth slowed down reportedly after Mutual Fund Equity investment was packaged as insurance under the name of Unit-linked Insurance Plans, commonly known as ULIPs. ULIPs were insurance distributors' favorite as they offered a commission as high as 35%.

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Domination by the bancassurance channel

In the early 2000s, insurers had a potential to grow but because of their "short-sightedness and regulatory flip-flops", customers had to bear the brunt of the misdeeds.

Some of the early entrants are struggling to gain significant market size despite existing for over 15 years.

The domination by some of the 'bank insurance' channel players to sell insurance is also one of the reasons.

Insurers unable to draw enough customers

Several insurers are making losses as they are unable to reach out to potential customers in the first place. HDFC Life, ICICI Prudential Life, and Max Life succeeded because of HDFC Bank's distribution strength, ICICI Bank's power, and Axis Bank's distribution deal respectively.

Market Share

LIC of India dominates the industry

LIC of India dominates the industry

The Indian life insurance industry, which has 24 companies, even today is dominated by the state-run Life Insurance Corporation (LIC) with a market share of 50%.

The next highest market share of 30% is enjoyed by the top four private insurance players.

The other 19 private companies - that mostly suffer losses - are left to fight for the remaining 20% market share.

Telecom sector

Insurance sector to go the telecom way?

The only way forward for the insurance sector is to go the telecommunication way where the stronger players eventually bought smaller ones.

The insurance sector is reportedly going through the same phase as the telecom sector during 1990-2000.

In the first round, there were 17 licensed telecom players, later in the next round there were 23; currently, there are only 6-7 telecom operators.


HDFC Life-Max Life merger to lead to more consolidations

The HDFC Life-Max Life merger is reportedly expected to lead to more consolidations in the sector.

Other potential consolidation candidates could be Birla Sun Life, Bajaj Allianz, and Future Generali.

'Insurance Regulatory and Development Authority' asking the companies to get listed to bring more transparency, could also force them to consolidate.

Marginal companies need deep-pocketed buyers for the required financial strength to get listed.

18 Jan 2017

Gen. Insurance companies to be listed on stock market

At a Cabinet meeting that took place on Wednesday, Finance Minister Arun Jaitley said that 5 general insurance companies were given the go-ahead to be listed on the stock market.

This listing will help them to gather funds from the capital market.

The companies are New India Assurance, United India Assurance, Oriental Insurance, National Insurance and General Insurance Corporation of India.

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