Peak Re: Unlocking opportunity in IndiaNovember 10 2017
The insurance opportunity in India is huge. There are 350 million people in the middle class, 40% of the population is below 20 years old and insurance penetration is less than 1%
Meeting the obvious growth potential will require capital and expertise, particularly in the agriculture sector, where there is a significant need for additional capacity after the government revamped the country’s crop insurance scheme, Pradhan Mantri Fasal Bima Yojana, to transfer risk from the government budget to the private insurance market.
It is an ambitious scheme that touches the lives and livelihood of a large swathe of the population. More than 50% of India’s workforce is still involved in agriculture and related activities in some way.
“It is a very good initiative by the Indian government under the leadership of Prime Minister Narendra Modi,” says Sudhir Salian, Director, Head of India at Peak Re. “The rollout has been very impressive and it has propelled growth in the Indian insurance industry.”
Worldwide, premiums from Indian agriculture insurance account for 13% of global agriculture premiums, with even more growth projected as private insurers continue to develop their offerings.
After just two years, the scheme has already managed to attract more private capital than ever before.
“There are private insurance companies in India where agriculture now constitutes one-third of their portfolio,” says Salian. “All insurance participants are very enthusiastic.”
Indeed, the scheme is still evolving and the market players, including reinsurers, are quickly learning the realities on the ground — and therein lies the risk and the opportunity.
“We have had two good years of monsoon,” says Salian. “It’s good that the insurance industry has been able to build reserves to pay the losses when an unsatisfactory monsoon comes. It’s how the insurance and reinsurance market handles the difficult years that will define the success of the scheme and how it makes a difference to the farmers’ lives and livelihood.”
As an Asian reinsurer that has been involved in the agriculture sector across many countries in the region, Salian says that Peak Re understands what it takes to manage such risks and can provide both the capacity and the knowledge transfer of best practices to help its clients make the most of the opportunity in India.
Given the young demographic in India, digital strategies are another opportunity that insurers are exploring as a way to increase penetration rates and the issuance of new licences is helping to introduce additional players to the market, many of which are bringing innovative approaches.
The two-wheeler market, for example, is one area that is ripe for digital players. Large-value business is relatively well served by the existing insurers, but under-penetration is a real issue in the small-ticket side of the business.
“The distribution of low-premium products and servicing of claims of these policies is always a challenge,” says Salian. “Digital platforms and technology can help solve some of these problems. The Indian consumer is very tech savvy and the use of technology such as smartphones may help to expand the size of the market.”
Indeed, some of the newly licensed companies are talking about doing business solely through digital platforms, which should serve to spur innovation in the industry and break some of the traditional barriers.
“New companies with a different approach to business and strategies to reach under-serviced segments, whether through distribution or servicing claims, are always welcome and will help the entire industry,” says Salian.
As well as new licences, foreign participation in the Indian market has also increased after the regulator raised the maximum shareholding that overseas insurers can own to 49% from 26% — and most of the existing foreign players in the market were quick to increase their level of investment. This should also help to drive new ideas and competition.
However, deploying new strategies can be challenging. The need to build a data-driven, real-time insurance platform to service India’s under-served segments will require insurers to be nimble and think out of the box. They will also benefit from the support of reinsurers who share these qualities.
“Digital strategies are capital-intensive to execute and having an appropriate reinsurance programme frees up capital, helps focus on the efficient use of capital and improves returns for investors,” says Salian. “Peak Re is always enthusiastic to be involved in any innovation process that improves the efficiency of the overall insurance industry.”
Director, Head of India
Tel: +852 3509 6666