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In this article we discuss the Indian insurance market and the trends that will help companies in the United States evaluate how they can leverage from this untapped market.

The research has been conducted by the VA consulting team working with inputs from several insurance leaders in the Indian market that have worked with early entrants like Met Life,An Agora Times report on the Indian Insurance Industry 2010 Articles Zurich, ICICI and others.

  1. Background to the Indian economy

Ever since the economy was opened up in 20 years ago India has been growing as an economy at nearly double digits.

As the working middle class becomes a sizable number the insurance industry has started growing at an incredible rate. It has grown over 200% since 2006. Even last year that insurance industry has grown by over 45%. Analysts predict the industry is going to grow at least 10% in 2010 to become a $42Billion industry. Even with this growth rate only 5% of the country is actually covered by any form of insurance.

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The research has been conducted by the VA consulting team working with inputs from several insurance leaders in the Indian market that have worked with early entrants like Met Life, Zurich, ICICI and others.

There are insurance governing bodies have been formed and governing bodies have brought about a number of changes to standardize the insurance sector but more changes are expected especially in the personal and life area.

There are many factors to probe into as an investor or venturing into the Indian market. Our guidance to companies that are interested in entering the Indian market is:

  • The consumers as well as the investors should be focusing on the insurer’s financial strength and capability to meet ongoing responsibilities to its policyholders.
  • The fundamentals of the insurance company should be strong and should not indicate a poor investment opportunity as this might also deter growth.

Key FindingsTaking into account the changing socio-economic demographics, rate of GDP growth, changing consumer behavior and occurrences of natural calamities at regular intervals, the Indian life insurance market is expected to reach the value of around $42 Billion in the year 2010. The market is expected to grow at a CAGR of more than 200% YOY from the year 2006.

  • In 2006-07, pension premium contributed about 22.11% to total premium income of insurers.
  • Interestingly, the figure in the first nine months to December 2005 was 25.22%.In the non-life segment, the established players control 65% of the market. So it is their monthly performance that determines how the market as a whole would perform.
  • In Motor Insurance Business, Public sector covers almost 68% of the market value whereas the private sector just had 32% market share till September 2006.
  • In Accident Insurance Business, private sector players have almost 53% market share with ICICI Lombard as the lead player. Public sector players constitute about 47% market value with New India as the leading player followed by United India.

Overview of the market

The insurance business in India much like the US insurance industry is divided into four classes:1) Life Insurance business2) Fire3) Marine 4) Miscellaneous Insurance.Life Insurers transact life insurance business; the rest is transacted by General Insurers. No composites are permitted as per law at this time. This is being reviewed.The business of Insurance essentially means defraying risks attached to any activity over time (including life) and sharing the risks between various entities, both persons and organizations. Insurance companies (ICs) are important players in financial markets as they collect and invest large amounts of premium. Insurance products are multipurpose and offer the following benefits:1. Protection to the investors2. Accumulate savings3. Channelize savings into sectors needing huge long term investments. ICs receive, without much default, a steady cash stream of premium or contributions to pension plans. Various actuary studies and models enable them to predict, relatively accurately, their expected cash outflows. Liabilities of ICs being long-term or contingent in nature, liquidity is excellent and their investments are also long-term in nature. Since they offer more than the return on savings in the shape of life-cover to the investors, the rate of return guaranteed in their insurance policies is relatively low. Consequently, the need to seek high rates of returns on their investments is also low. The risk-return tradeoff is heavily tilted in favor of risk. As a combined result of all this, investments of insurance companies have been largely in bonds floated by GOI, PSUs, state governments, local bodies, corporate bodies and mortgages of long term nature. The last place where Insurance companies are expected to be over-active is bourses.