1
Contents Advantage India Market overview and trends Growth drivers Success stories: Tata AIG Opportunities Useful information 2
Advantage India FY11 Market size: USD70 billion Strong demand Growing interest towards insurance among people; innovative products and distribution channels aiding growth Increasing demand for insurance offshoring Increasing investments Growing participation of the private sector with market share of 30 per cent in FY11 as against 2 per cent in FY01 Government s proposed increase in FDI limit to 49 per cent from 26 per cent will further fuel investments Advantage India Attractive opportunities Life insurance in low-income urban areas Health insurance, pension segment Strong growth potential for microinsurance, especially from rural areas Policy support Tax incentives on insurance products Passing of Bill gives IRDA flexibility to frame regulations Clarity on rules for insurance IPOs which will infuse liquidity into the industry FY15E Market size: USD139 billion Notes: 2015E Expected value for 2015; estimate according to BMI; IRDA Regulatory and Development Authority IPO Initial Public Offering; FDI Foreign Direct Investment ADVANTAGE INDIA 3
Contents Advantage India Market overview and trends Growth drivers Success stories: Tata AIG Opportunities Useful information 4
Evolution of the Indian insurance sector 2000 onwards 1993-99 Before 1956 The life insurance sector was made up of 154 domestic life insurers, 16 foreign life insurers and 75 provident funds 1956-1972 All life insurance companies were nationalised to form LIC in 1956 to increase penetration and protect policy holders from mismanagement The non life insurance business was nationalised to form GIC in 1972 Malhotra Committee recommended opening up the insurance sector to private players IRDA, LIC and GIC Acts were passed in 1999, making IRDA the statutory regulatory body for insurance and ending the monopoly of LIC and GIC Post liberalisation, the insurance industry has recorded significant growth and the number of private players increased to 41 in 2011* Customers are more conscious of the benefits of insurance and its importance for a secure future Notes: * figure as on September 30, 2011 LIC Life Corporation of India GIC General Corporation of India IRDA Regulatory and Development Authority MARKET OVERVIEW AND TRENDS 5
IRDA governs the Indian insurance sector Regulatory and Development Authority (IRDA) Established in 1999 under the IRDA Act Responsible for regulating, promoting and ensuring orderly growth of the insurance and re-insurance business in India Life (24 players) Public (1) Private (23) Ministry of Finance (Government of India) Regulatory and Development Authority (IRDA) Non Life (24 players) Public (6) Private (18) Reinsurance(1 player) Public (1) Source: IRDA, Aranca Research MARKET OVERVIEW AND TRENDS 6
India s lucrative insurance market India is one of the fastest growing insurance markets in the world Projected average real premium growth rate (2010-) India is set to beat* other emerging markets in growth over 2010-12 India Emerging Markets 10.8% 11.3% 9.2% 7.8% Total Asia 5.2% 6.6% World 4.0% 3.2% Industrialized Countries 3.1% 2.4% 0.0% 5.0% 10.0% 15.0% Life Nonlife Source: Swiss Re Estimates, Aranca Research Note: * estimates by Swiss Re MARKET OVERVIEW AND TRENDS 7
Premiums have been growing at a brisk pace The total insurance market has grown from USD13 billion in FY02 to USD70 billion in FY11 80 Gross premiums written in India (USD billion) Over FY02-11, premiums have increased at a CAGR of 20.5 per cent 70 60 50 40 42 46 55 61 30 33 20 10 0 22 17 10 12 14 3 3 3 4 4 5 6 7 7 9 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Non-life Life insurance Source: IRDA, Aranca Research MARKET OVERVIEW AND TRENDS 8
Life insurance market appears particularly vibrant The life insurance market has grown from USD10 billion in FY02 to USD61 billion in FY11 High growth in life insurance premiums (USD billion) 65 Over FY02-11, life insurance premiums increased at a CAGR of 21.6 per cent 55 45 35 31 33 39 42 25 15 5-5 27 19 10 11 16 13 11 13 17 18 2 3 6 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Private Public Source: IRDA, Aranca Research MARKET OVERVIEW AND TRENDS 9
Penetration of life insurance has also increased over the years Penetration rate has increased to 4.4 per cent in FY11 from 2.2 per cent in FY02 Higher penetration rates (%) over years 4.6 This rate is above the global average of 4.0 per cent 4.1 4.0 4.0 4.4 2.6 2.5 2.5 2.2 2.3 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Source: IRDA, Aranca Research MARKET OVERVIEW AND TRENDS 10
Increasing private sector activity in life insurance segment (1/2) LIC is the largest insurance company and accounted for the market share of 70 per cent in FY11 Share of private sector has been increasing over the years; it increased from around 2 per cent in FY03 to around 30 per cent in FY11 Greater private sector activity (% share) over the years 100% 80% 74 70 70 60% 98 95 91 86 82 71 40% 20% 0% 26 29 30 30 2 5 9 14 18 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Private sector Public sector Source: IRDA, Aranca Research MARKET OVERVIEW AND TRENDS 11
Increasing private sector activity in life insurance segment (2/2) LIC is still the market leader, with a share of 70 per cent Market share (FY11) The share of private sector players has increased to 30 per cent from 2 per cent over FY03-11 2% 2% 7% LIC 2% ICICI Prudential 3% 3% 4% 6% 70% SBI Life Bajaj Allianz HDFC Standard Reliance Max New York Birla Sun Life Others Source: IRDA, Aranca Research HHI* Index = 0.50 HHI* Index (among private players) = 0.11 * Herfindahl Hirschman Index measures market concentration. An index value between 0 and 0.10 denotes low concentration level, between 0.10 and 0.18 moderate concentration level, and more than 0.18 high concentration level. MARKET OVERVIEW AND TRENDS 12
Non life insurance market has also posted strong growth The non life insurance market has grown from USD2.6 billion in FY02 to USD9.1 billion in FY11 Healthy growth in non life insurance premiums (USD billion) Over FY03-11, non life insurance premiums have increased at a CAGR of 14.5 per cent 5.5 4.5 4.0 3.7 3.6 3.3 3.1 3.0 2.8 2.5 0.1 0.3 0.5 1.8 2.3 2.6 0.7 1.1 2.9 3.6 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Private Public Source: IRDA, Aranca Research MARKET OVERVIEW AND TRENDS 13
With penetration rates low, there is strong potential for growth Penetration rate has been in the 0.56-0.71 per cent range over FY02-11 Penetration rates (%) over the years Strong potential for growth apparent from comparison with the global average (3 per cent) 0.67 0.71 0.64 0.62 0.61 0.60 0.60 0.60 0.60 0.56 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Source: IRDA, Aranca Research MARKET OVERVIEW AND TRENDS 14
Shares in non life insurance market: Motor insurance leads the way Motor insurance forms the largest non life segment with a share of 43 per cent Segment wise breakup (%, FY11) Health insurance is the fastest growing segment and currently accounts for 23 per cent of the total 23% 11% 17% Fire 6% Marine Motor Health Others 43% Source: IRDA, Aranca Research MARKET OVERVIEW AND TRENDS 15
Private sector participation is higher in the non-life segment The top 4 players are public corporations and account for 59 per cent of the total market Market Share (FY11) Private players are not far behind and compete better in the non life insurance segment 20% 17% New India United National 4% 7% 15% Oriental ICICI Lombard 10% 13% 15% Bajaj Allianz IFFCO Tokio Others Source: IRDA, Aranca Research HHI* Index = 0.12 HHI*Index (among private players) = 0.14 * Herfindahl Hirschman Index measures market concentration. An index value between 0 and 0.10 denotes low concentration level, between 0.10 and 0.18 moderate concentration level, and more than 0.18 high concentration level. MARKET OVERVIEW AND TRENDS 16
Notable trends in the insurance sector Emergence of new distribution channels New distribution channels like bancassurance, online distribution and NBFCs have widened the reach and reduced costs Firms have tied up with local NGOs to target lucrative rural markets Growing market share of private players In the life insurance segment, share of the private sector in total premiums increased to 30 per cent in FY11 from 2 per cent in FY03 In the non-life insurance segment, share of the private sector increased to 41 per cent from 9.5 per cent cent over the same period Launch of Innovative products The life insurance sector has witnessed the launch of innovative products such as Unit Linked Plans (ULIPs) Other traditional products have also been customised to meet specific needs of Indian consumers Mounting focus on EV over profitability Large insurers are continuing to expand, focusing on cost rationalisation and aligning business models to realise reported embedded value (EV), and generate value from future business rather than focus on present profits Notes: EV Embedded Value MARKET OVERVIEW AND TRENDS 17
Contents Advantage India Market overview and trends Growth drivers Success stories: Tata AIG Opportunities Useful information 18
Demand growth for insurance products is set to accelerate (1/2) Increasing savings drive insurance Household and financial savings projections for 2015 India s robust economy is expected to sustain the growth in insurance premiums written. Higher personal disposable incomes would result in higher household savings that will be channeled into different financial savings instruments like insurance and pension policies Household Savings (USD billion) 306 540 Financial Savings (USD billion) 141 248 Notes: Financial savings denote investment in equity and debt instruments 89 45 2000 2010 2015E 2000 2010 2015E Source: ICICI, Aranca Research GROWTH DRIVERS 19
Demand growth for insurance products is set to accelerate (2/2) Growing affluent middle class Indian residents shifting from low- to high-income groups The emergence of an affluent middle class is triggering demand for both life and non-life personal insurance lines A rising number of young professionals are opting for health insurance, motor insurance and unit-linked insurance products (ULIPs) 70 60 50 40 30 20 10 0 2005 2010 2015 2020 2025 Strivers Seekers Deprived Aspirers Globals Source: McKinsey Quarterly, Aranca Research GROWTH DRIVERS 20
Favourable policy measures have aided the sector Tax incentives products are covered under the EEE (exempt, exempt, exempt) method of taxation. This translates to an effective tax benefit of approximately 30 per cent on select investments (including life insurance premiums) every financial year Union Budget 13 The proposed (Amendment) Bill would empower IRDA to introduce forward-looking regulations to promote sustainable growth as it would give IRDA flexibility to frame regulations The government has also extended Rashtriya Swasthya Bima Yojana (RSBY) to cover unorganised sector workers in hazardous mining and associated industries like slate and slate pencil, dolomite, mica and asbestos etc. This would help in further growth of the insurance sector Life insurance companies allowed to go public IRDA recently allowed life insurance companies that have completed 10 years of operations to raise capital through initial public offerings (IPOs) Companies will be able to raise capital if they have embedded value of twice the paid up equity-capital GROWTH DRIVERS 21
Major foreign investment in insurance was done in 2000-01 (1/2) The IRDA Act, 1999 allowed an FDI of up to 26 per cent in the insurance sector on automatic route subject to obtaining license from IRDA Authorities are now considering an increase of FDI limit to 49 per cent through the Laws Amendment Bill Top Life Co Foreign partner Domestic partner Year Prudential plc (26%) ICICI Bank Ltd (74%) 2000 Allianz AG (26%) Bajaj Finserv Ltd (74%) 2001 BNP Paribas Assurance (26%) SBI (74%) 2001 Standard Life (26%) HDFC Bank (72.4%) 2000 Sun Life Financial Inc (26%) Aditya Birla Group (74%) 2000 Nippon Life (26%) Reliance Capital (74%) 2011 New York Life International (26%) Max India (74%) 2000 GROWTH DRIVERS 22
Major foreign investment in insurance was done in 2000-01 (2/2) Top General Co Foreign partner Domestic partner Year Fairfax Financial Holdings Ltd (26%) ICICI Bank Ltd (74%) 2001 Allianz AG (26%) Bajaj Finserv Ltd (74%) 2001 Tokio Marine & Nichido Fire Group (26%) IFFCO (74%) 2000 Source: Aranca Research GROWTH DRIVERS 23
Private sector investment in insurance is rising Investments from the private sector are increasing as they see a huge opportunity in the growing insurance sector of the country Most of the existing players are tying up with banks to expand their distribution network Few players like HDFC Life are planning to go public; others are selling stakes in order to generate the funds IndiaFirst Life USD28 million in 2010; plans to invest USD45 million in 2011 Aviva Life USD26 million in 2010 Reliance Life USD58 million in 2011 Canara HSBC Life USD22 million in 2011 Bharti AXA Life Plans to inject USD100 million in 2011 AEGON Religare Life USD71 million in 2010; plans to invest USD445 million through 2016 ING Vysya Life USD53 million in 2010 HDFC Life Going public by FY14 Source: Towers Watson; Assorted news articles; Aranca Research GROWTH DRIVERS 24
Contents Advantage India Market overview and trends Growth drivers Success stories: Tata AIG Opportunities Useful information 25
Success of SBI Life Total premium collected in (USD billion) Net profit (USD million) 2.6 2.2 1.8 1.4 1.0 2.7 2.7 CAGR: 23% 2.1 1.5 1.2 FY08 FY09 FY10 FY11 FY12 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 115.8 CAGR: 101% 76.3 57.5 37.5 7.1 FY08 FY09 FY10 FY11 FY12 SBI Life is a joint venture between Indian banking giant State Bank of India (74 per cent) and France headquartered BNP Paribas Assurance (26 per cent). The company primarily deals in life insurance and pension plans. Currently, the company has 629 branches in India. In FY11, it issued around one million insurance policies Between FY08 and FY12, SBI Life s profits increased at a CAGR of 101 per cent; in FY12 alone annual profits increased 52 per cent to USD115.8 million. It was also the major private life insurer in new business premium during FY12 Source: Company website, Aranca Analysis SUCCESS STORIES: TATA AIG 26
Success of Tata-AIG microinsurance (1/3) Objective for establishing microinsurance Fulfilment of corporate social responsibility Increase brand recognition to boost market entry today s micro clients maybe tomorrow s high-premium clients To target untapped markets and income groups of rural India Key strategic decision The microinsurance business model must be separated from the regular insurance business model Selling microinsurance would require new, alternate distribution mechanisms The microinsurance business model New business unit Partnering with NGOs Forming CRIGs Local operations managed by NGOs A special microinsurance team called the Rural & Social Team is formed Identify and partner with credible NGOs operating in the local community NGO suggests good agents for microinsurance policies (microagents) A group of microagents called a community rural insurance group (CRIG) is formed; it relies on direct marketing of microinsurance policies to local community members Local operations like collecting and aggregating the premiums, training micro-agents, and helping to distribute benefits looked after by the NGO; this saves administrative costs for Tata-AIG Source: Company website, Aranca Analysis SUCCESS STORIES: TATA AIG 27
Success of Tata-AIG microinsurance (2/3) Key Takeaway Partnerships with NGOs have been instrumental in the success of Tata-AIG microinsurance. They have helped select agents and reduced the costs of front-end administrative services. Most crucially, their local know-how and connections have helped build trust for the insurance products in low-income rural areas 2002 2003 2004 2005 2006 2007 Rural obligations specified by IRDA exceeded 7% 11% 9% 10% 12% 14% 14% 18% 16% 21% 18% 19% 0 0.05 0.1 0.15 0.2 0.25 Required Achieved Source: Company website, Aranca Analysis SUCCESS STORIES: TATA AIG 28
Success of Tata-AIG microinsurance (3/3) Robust growth of microinsurance expected 450000 400000 350000 300000 250000 200000 150000 100000 50000 0 Number of policies 2008 2009 2010 2011 3500 3000 2500 2000 1500 1000 500 0 Premium First year (FYP) and Renewals (RYP) 2008 2009 2010 2011 FYP RYP Source: Company website, Aranca Analysis Source: Company website, Aranca Analysis SUCCESS STORIES: TATA AIG 29
Contents Advantage India Market overview and trends Growth drivers Success stories: Tata AIG Opportunities Useful information 30
Life insurers: Low-income urban and pension markets (1/2) India s life insurance market has grown phenomenally over the past few years; premium for life insurance has grown at about 10 per cent in FY11 density and penetration remain at very low levels compared to developed countries; this points towards strong potential for growth in future Rapid development in Tier II and Tier III cities and growth in new bankable households have led to the emergence of a large insurable class with an appetite for sophisticated life insurance products The low-income urban opportunity in India Household insurance premiums (INR) CAGR: 26% 1,300 4,100 Urban low-income insurance penetration 30% 40% Business models would need to be customised accordingly, to maintain cost effectiveness as most lowincome customers would be small-ticket accounts though huge in numbers 2007 (E) 2007 (E) Source: Asia Review, Aranca Research Notes: E in the axis for the figures above refer to estimates Notes: E in the axis for the above figures refer to estimates OPPORTUNITIES 31
Life insurers: Low-income urban and pension markets (2/2) Increasing life expectancy, favourable savings, and greater employment in the private sector will fuel demand for pension plans The opening of the pension market with the passing of the PFRDA Bill 2011 will make the pension market more conducive for private life insurers Proposed new pension bill by government will further provide new opportunities to insurers There is scope to introduce new-generation pension products such as Variable Annuity and Inflation Indexed Annuity Opportunity in the Indian pension and annuity market Indian retirement market (INR trillion) 5 4 4 3 3 2 2 1 1 0 CAGR: 7% 2 4 2010 2025(E) Formal pension system penetration (2010) Workers covered 13% Workers not covered Source: McKinsey Quarterly, Aranca Research Notes: PFRDA Pension Fund Regulatory and Development Authority OPPORTUNITIES 32
Non-life insurers: Motor and health insurance markets (1/2) In FY11, non-life insurance has showed growth of 17.5 per cent in terms of new policy issued Despite posting strong growth, non-life insurance sector remains far from tapped, with penetration rates (premium to GDP ratios) remaining low at 0.7 per cent in 2011 as compared to average of 4.6 per cent in US and 3 per cent in Europe Strong growth in the automotive industry over the next decade will be a key driver of motor insurance Proposed IRDA draft envisages a 10-80 per cent rise in premium rates for the erstwhile loss making third-party motor insurance Breakup of non-life insurance market in India (2011) Vehicle production in India* (million units) 35 30 32 16.8% Motor insurance 6.30% 43% Health insurance Fire insurance 11.30% Marine insurance other 22.60% 25 20 15 10 5 0 2.8 9.2 Car Production 0.7 2.3 Commercial 2&3 wheelers 2010 2020E Source: *ACMA Estimates, Aranca Research Notes: E in the axis for the figures above refer to estimates 9 OPPORTUNITIES 33
Non-life insurers: Motor and health insurance markets (2/2) Only 1.5-2 per cent of total healthcare expenditure in India is currently covered by insurance providers From just 2 per cent of Non-life insurance in 2007, Health insurance now contributes 22.6 per cent of non-life insurance Health insurance continues to be one of the most rapidly growing sectors in the Indian insurance industry and reported growth of 38.2 per cent in FY11 Health insurance penetration Health insurance penetration (2010) 14% Health insurance (million policies) CAGR: 8% 220 Absence of government-funded health insurance makes the market attractive for private players 86% 110 IRDA recommended the government to bring down capital requirements for standalone health insurance companies from USD21 million to USD10 million Population covered Population not covered 2005 2015 Source: McKinsey Quarterly, Annual report IRDA, Aranca Research OPPORTUNITIES 34
Microinsurance: Tapping India s rural wealth The business environment in India s microinsurance sector supports healthy growth Macro level (The enabling environment) Intermediate level (Support infrastructure) IRDA drafted microinsurance guidelines in 2010 which contain a number of favourable measures such as Lower threshold limits for agents commissions Rural areas must account for 7 per cent of new life insurance policies in 1 st year of firm s operation and rise to 20 per cent over the next 10 years In order to reduce microinsurance distribution costs, IRDA proposed microinsurance schemes to supplement existing government insurance schemes The number of regional rural banks and NGOs operating in the rural sector will aid distribution of microinsurance products Micro level (Policy holders) The annual income growth rate in rural India is expected to increase to 3.6 per cent over 2010-30 from 2.8 per cent over 1990-2010 About 5 million people currently have microinsurance while the entire market is expected to be in the range of 140-300 million Source: IRDA, McKinsey, Aranca Research OPPORTUNITIES 35
Strong potential in crop insurance Farmers covered under crop insurance (USD millions) Sum insured (USD million) 10.0 9.3 3500 3,174 8.0 6.0 CAGR: 139% 3000 2500 2000 CAGR: 100% 4.0 2.0 0.0 2.3 0.7 0.4 FY08 FY09 FY10 FY11 1500 1000 500 0 1,093 398 208 FY08 FY09 FY10 FY11 Crop insurance market in India is the largest in the world and covers around 9 million farmers Between 2008 and 2011, crop insurance in the country increased at a CAGR of 139 per cent Source: World Bank, Aranca Research Note: Figures mentioned above are as per Indian agricultural year SUCCESS STORIES: TATA AIG 36
Contents Advantage India Market overview and trends Growth drivers Success stories: Tata AIG Opportunities Useful information 37
Industry Associations Regulatory and Development Authority (IRDA) 3rd Floor, Parisrama Bhavan, Basheer Bagh, Hyderabad 500 004 Phone: 91-040-23381100 Fax: 91-040-66823334 E-mail: irda@irda.gov.in Life Council 4th Floor, Jeevan Seva Annexe Bldg. S. V. Road, Santacruz (W), Mumbai 400054 Phone: 91-22-26103303, 26103306 E-mail: ninad.narwilkar@lifeinscouncil.org General Council 5th Floor, Royal Building, 14, Jamshedji TATA Road, Churchgate, Mumbai 400020 Phone: 91-22-22817511, 22817512 Fax: 91-22-22817515 E-mail: gicouncil@gicouncil.in USEFUL INFORMATION 38
Glossary ACMA: Automotive Component Manufacturers Association of India EV: Embedded Value FDI: Foreign Direct Investment FY: Indian financial year (April to March) So FY12 implies April 2011 to March GOI: Government of India INR: Indian Rupee OEM: Original Equipment Manufacturers NATRiP: National Automotive Testing and R&D Infrastructure Project SEZ: Special Economic Zone USD: US Dollar Conversion rate used: USD1= INR 48 Wherever applicable, numbers have been rounded off to the nearest whole number USEFUL INFORMATION 39
Disclaimer India Brand Equity Foundation (IBEF) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Aranca and IBEF s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation. DISCLAIMER 40