Thaindian News

Chennai, April 11 (IANS) Profitability is the biggest challenge facing companies in the Indian insurance market, which is expected to reach $350-400 billion in premium income by 2020, says a research report by the Federation of Indian Chamber of Commerce and Industry (FICCI) and the Boston Consulting Group (BCG).

The report titled “India Insurance - Turning 10, Going on 20″ released Monday at the 14th Insurance Conference in New Delhi.

“While the industry has come a long way over the past decade, the big challenge with the industry is profitability. Private life insurers have accumulated losses of over Rs.16,000 crore till March 2010,” said Alpesh Shah, partner and director, BCG India and author of the report.

According to him, the cumulative underwriting losses for the non-life insurers since 2001 is nearly Rs.30,000 crore.

Simply put underwriting loss is the difference between the premium income and claims paid. Non-life insurers declare net profit/loss after taking into account the investment income. Many of the Indian non-life insurers are profitable on net basis.

According to the research report, the reasons for the profitability challenge for life and non-life insurers include their fascination for top line growth resulting in an inefficient operating model and inferior operating ratios; and limited focus on the end customer, with the intermediary gaining the insurer’s focus.

For the life insurers, the report cites last September’s customer-friendly regulations governing unit linked policies (ULIP) as the reason that tightened their margins.

The report cites the high claims cost in respect of third party liability polices, health loss ratios, fraud in the cause of auto and health segments and lack of supplier (hospital and auto garage) management by the insurers for the underwriting loss incurred by the non-life insurers in particular.

According to the report, the life insurers should fix their agency operating model; build strategic, long term non-agency partnerships, incubate and develop alternative distribution channels; develop customer centric model and go lean.

Similarly, the non-life insurers, for a sustainable business model, should create an optimal product portfolio, innovate, move towards risk based pricing, develop next generation claims management and build alternate distribution channels.

According to BCG’s Shah, the government/sectoral regulator has a key role to play in enabling the journey of insurers towards sustained profitability by relaxing the shareholding norms; defining the initial public offer norms; permit banks to sell policies of multiple insurers; enable electronic statements of insurance; refine investment norms and enable Indian insurers to go global with flexible norms.